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Categorized | Tax Time

Understanding the 2018 Tax Act

 

From Action Tax Service

The 2018 Tax Act officially titled the “Tax Cut and Job Act of 2017” will dramatically affect everyone’s tax returns. It has provisions that will eliminate deductions that we have grown accustomed to seeing such as the amount we claim for each exemption while it also increases the amount of some credits such as the Child Tax Credit that will offset the loss of the exemption amount. At a little over 1,000 pages, it has a tremendous amount of detail but ultimately we believe that almost everyone will see a decrease in tax for 2018 over 2017. Let’s go over what I would call as the Top Ten main provisions that will affect millions of taxpayers. 

1.  Increase the Standard Deduction.  The Standard Deduction is increased for single and married filing separate taxpayers from $6,350 to $12,000.  Joint filers and qualifying widows or widowers will increase from $12,700 to $24,000.  Head of household filers will increase from $9,350 to $18,000.  This provision will dramatically reduce the number of taxpayers who itemize deductions.

2.  Eliminate Exemption Amount.  The Exemption amount of $4,050 is no longer allowed. The increased Standard Deduction will offset this loss.

3.  Increase Child Tax Credit.  The current Child Tax Credit of $1,000 is increased to $2,000.  Up to $1,400 of that amount is refundable; an increase from the current $1,000.  

4.  Family Tax Credit. A new nonrefundable credit of $500 is added for 2018.   The $500 is allowed for each dependent who is not eligible for the Child Tax Credit.  Those dependents would be family members age 17 or older and could include dependent parents and adult disabled children.  

5.  Limited Deductions for Property Tax, Sales Tax, and State Income Tax. All of these deductions as a group will be limited to $10,000. There is no limit currently.

6.  Mortgage Interest Paid Limited. In 2018, mortgage interest paid on acquisition debt of up to $750,000 will be the rule. The limit now is $1,000,000. The $1,000,000 rule will apply to future years for contracts in place as of 12/15/17. 

7.  Tuition Deduction Eliminated. The Tuition and Fees Deduction of up to $4,000of qualifying Tuition and Fees is no longer allowed.  This deduction worked in conjunction with the Education Credits.

 8.  Tax Rates Decreased. There will still be 7 Individual Tax Rates ranging from 10% up to a maximum of 37%. For the most part, the rates are decreased by 2-3%.  The result is that total income tax for a taxpayer with the same amount of income subject to tax in 2018 should be lower than the same number for 2017.  

9. Miscellaneous Itemized Deductions Eliminated. The 2% Miscellaneous Itemized Deductions such as Investment Expenses, Tax Preparation Fees, and Out of Pocket Employee Business Expenses will no longer be deductible.

10. Corporate Tax Rates Reduced. The Corporate Tax Rates have been reduced across the board to 21%. This lower rate will apply to tax years beginning after December 31, 2017.  

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