One of the goals of overhauling the federal income tax law was to simplify it, thereby making the process of filing taxes easier. At least, that’s what proponents of the legislation said.
Whether you agree or disagree with them, one thing is for sure: Filing taxes for 2018 will be anything but simple.
Most of the provisions of the Tax Cuts and Jobs Act — the official name of the tax law overhaul — take effect this year. That means your 2018 tax return — the one you will file in 2019 — will be the first one you file under a bunch of new rules.
So, here are some key changes to the tax code that will affect most individual taxpayers next year when they sit down to tackle their 2018 return.
Just keep in mind that not all of these changes will last long after 2018. Many changes affecting individual taxpayers will expire in the mid-2020s. For example, two of the biggest changes in the overhaul — redefined tax rates and increased standard deductions — are scheduled to expire in 2026.
1. Tax bills stand to shrink
Another goal of the overhaul was to lower federal income taxes for individuals, not to mention corporations. And analyses tend to agree that smaller tax bills will be the overall effect of the new law.
After all, the overhaul reduces most income tax rates for individuals.
In 2018, all income groups are projected to see a reduction in their taxes, on average, according to an analysis by the Tax Policy Center, a joint venture of the Urban Institute and Brookings Institution. Only about 5 percent of folks are projected to pay more taxes.
Folks who earn less money can expect to see less savings, though. In other words, the tax system will still be progressive. TPC explains:
“In general, higher income households receive larger average tax cuts as a percentage of after-tax income, with the largest cuts as a share of income going to taxpayers in the 95th to 99th percentiles of the income distribution.”
Folks in the middle 20 percent of income earners — the middle class — can expect an annual tax cut of about $800, according to an analysis by the Institute on Taxation and Economic Policy. By comparison, folks in the top 1 percent of earners can expect a cut of more than $55,000.
So, what exactly are the new tax rates, then?
Starting with tax year 2018, the federal income tax rates for married couples filing joint returns, as well as for widows and widowers, will be:
- 10 percent — for those with a taxable income of $0 up to $19,050
- 12 percent — more than $19,050, up to $77,400
- 22 percent — more than $77,400, up to $165,000
- 24 percent — more than $165,000, up to $315,000
- 32 percent — more than $315,000, up to $400,000
- 35 percent — more than $400,000, up to $600,000
- 37 percent — more than $600,000
The same seven tax rates apply for heads of household, single people and married couples filing separate returns. The corresponding income brackets vary for these types of taxpayers, though.
You can find charts with all the details in the section of the new tax law titled “Modification of Rates.” The section is found on the first two pages of this PDF version of the legislation.
2. Standard deductions will jump
Starting with tax year 2018, standard deductions will swell, roughly doubling. They will be:
- $24,000 — for joint filers
- $18,000 — heads of household
- $12,000 — single filers
The standard deduction reduces the amount of your income that’s subject to federal income taxes, according to the Internal Revenue Service.
For example, if you’re eligible for a standard deduction of $24,000 for tax year 2018 and you choose to take it, you would not be taxed on the first $24,000 of your taxable income from 2018.
Currently, the standard deduction is based on multiple factors besides tax filing status, such as age and income.
If you don’t know what your standard deduction was last year or will be for tax year 2017, you can use the IRS website’s “How Much Is My Standard Deduction?” tool to figure it out.
3. Other deductions will be gone or modified
Now, for the bad news about tax deductions: The overhaul kills off some and modifies others, generally scaling them back. Most of these changes start in 2018.
I’ve detailed many of the changes to deductions listed below in other recent articles. So, check out those that may apply to you:
- “3 Costly Ways Homeowner Tax Breaks Will Change in 2018“
- “Act Fast: These 4 Tax Breaks Will Disappear in 2018“
- “9 Tax Breaks You Can Still Claim for 2018“
Meanwhile, to round them up, the deductions that ended when 2017 ended include those for:
- Interest on home equity loans
- Interest on home equity lines of credit (HELOCs)
- Employee work expenses
- Tax preparation fees
- Investment interest expenses
- Personal casualty and theft losses (except for certain losses incurred in certain federally declared disaster areas)
- Personal and dependent exemptions
- Moving expenses (except for active-duty military members who are ordered to relocate)
The overhaul also repealed the deduction for alimony payments, but this change will not apply until 2019.
The deductions that have been modified, starting in 2018, include those for:
- Interest on home mortgages
- State and local income taxes
- Charitable contributions
- Medical expenses — but this change ends after 2018
So, how do you feel about filing your 2018 taxes under so many changed rules? Sound off below or over on our Facebook page.