Most people don’t pay attention to news about state and federal taxes until it comes time to fill them out, so you may or may not be aware that there are a few changes in store for you when you file your 2018 taxes, payable in April 2019.
President Trump’s Tax Cut and Jobs Act
President Trump signed the Tax Cuts and Jobs Act on December 22, 2017. It had no effect on 2017 taxes payable in 2018, but now it’s in effect until 2025.
If you have any questions about how the Tax Cuts and Jobs Act is going to affect you, don’t hesitate to come into G. I. Tax Service for a consultation.
But we’re going to cover the basics in this blog.
Forms 1040EZ and 1040A no longer exist
There used to be a tax form called 1040EZ. Anyone who made less than $100,000, had no dependents and no investment income could use this form. As the name implies, it was pretty easy.
That form is now gone, replaced by Form 1040 Simplified.
Form 1040A is gone as well. Instead, Form 1040 has six different Schedules, which you will use depending on your needs.
Lowering of Federal tax rates
If you’ve heard nothing else about your taxes, you’ve probably heard that the tax rate has been lowered. Depending on your income, the tax rate starts at 10%, then goes up to 12%, 22%, 24%, 32%, 35%, and tops out at 37%.
Increased Standard Deduction
Here’s another item you may have heard of- your standard deduction amount increased. Now if you’re single or married filing separately, your standard deduction is $12,000. Married or filing jointly, or a qualifying widow(er), it jumps up to $24,000. And if you are a head of household, it will be $18,00.
Increased child tax credit and additional child tax credit
The credit you can claim here has been increased to $2,000 per qualifying child.
No more Personal Exemptions
This is probably something that very few people realize – you can no longer claim dependents on your taxes. There’s no personal exemption for yourself, or for your spouse, or for your dependents.
So why claim dependents?
There are still a few tax credits you can take advantage of if you have dependents.
If you’re the head of a household, meaning that you have at least one dependent, you will receive a larger standard deduction – that $18,000 we mentioned earlier, rather than $12,000 as it used to be.
And the child tax credit has increased, so you can take advantage of that as well. Your income limit to qualify for the credit has increased as well, up to $200,000, or $400,000 if you’re filing jointly.
2018 and beyond – who qualifies as dependents?
First, you have to figure out if your qualifying relative is your dependent.
“A qualifying relative is a child who is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of any of them such as a grandchild, who:
- Is under 19 at the end of 2018 and younger than you (or your spouse if filing jointly)
- Is under age 24 at the end of 2018, a student, and younger than you (or your spouse if filing jointly)
- Is any age and permanently and totally disabled
- Didn’t provide over half of his or her support for 2018
- Isn’t filing a joint return for 2018, or if he or she is, is doing so only to claim a refund of withheld income tax or estimated tax paid,
- And who lived with you for more than half of 2018
There’s more to it.
This individual or individuals:
- Can’t be claimed as a dependent on anyone else’s tax return.
- Can’t have earned more than $4150 in 2018
- Is someone for whom you’ve provided more than half their support. This can get complicated if the child has divorced parents. Typically, the parent with the higher income claims the child as a dependent.
- If an individual is married but meets the criteria above, he or she can also be claimed as a dependent as long as they are not filing a joint tax return.
Deciding who is or who is not a dependent can be tricky. With all the tax credits available, even if the personal exemption is not, it’s important to get it right. Visit a G.I. Tax Service office to discuss the issue of dependents if you have any questions.
About Glenn Sandler, CPA: Glenn Sandler, CPA, has been in public accounting for over 30 years. Glenn Sandler specializes in Forensic Accounting, Financial Statement Analysis, Business Consulting, Income Tax planning and Income Tax Preparation. He is currently working on expansion of G.I. Tax Service, a premier tax return preparation company that is poised to become one of the leading professional tax services in the United States.