The recent tax law changes in the Tax Cut & Jobs Act (TCJA) will affect most Americans - some positively and some negatively. My view is that most suburban home owners with children will not be happy when 2018 taxes are prepared in the Spring of 2019. These tax changes do not affect your 2017 tax returns which will be filed in the next few months.
The biggest immediate change is in tax withholdings. If you receive a regular paycheck (W-2 income at tax time) you will see larger take home pay starting in February 2018. That’s good, right? Maybe. If you have substantial income tax withheld from your state and higher property taxes, you will only be able to deduct $10,000 of these expenses. Look at your last filed tax return. If Schedule A line 9 is much greater than $10,000 and Line 29 is much greater than $24,000 (Married) and $12,000 (Single) you should increase the amount of withholding (lower your tax exemptions) you take for tax purposes. You can do this by submitting a new W-4 to your Human Resources or Payroll department.
Another immediate change is the ability to use 529 College Savings Accounts to pay for private elementary and high school tuition up to $10,000 per child/account per year. Understand, though, if you use these funds for K-12, they will be unavailable to use to pay for college.
The following tax changes will not affect you until you file your 2018 returns in the Spring of 2019. You should be aware if you had the following deductions in the past:
- No more subtraction of unreimbursed employee expenses
- No more subtraction of tax preparation and investment fees
- Limit of $10,000 subtraction for state, local, property and personal property taxes
- No more home equity line of credit interest deduction unless the money was used to substantially improve (remodel) your existing home. If you used it to buy a car, pay off bills or other non-home improvement related expenses, no more deduction
The Capital Gain brackets have improved. You pay no capital gains (0%) if your taxable income is less than $77,200 (Married) and $38,600 (Single). You pay a 15% capital gains tax if your income is between $77,200 - $479,000 (Married) and between $38,600 - $239,500 (Single). For taxable income over those amounts capital gains are taxes at 20%.
The Estate Tax exclusion (amount above which you have to begin to pay Estate Tax) has increased to $11.2 Million per person or $22.4 Million per married couple.
There are many other detailed changes but the ones highlighted in this Blog are the ones that are most likely to affect you in 2019 and you should plan for now.