When one tax season ends, it’s time to look ahead to the next. And this year, peering into the tax future is especially important.
The next tax return you file — by next April — will be for the 2018 tax year. And that’s when most of the recent changes to the federal tax code take effect.
Some of these changes will be good news. After all, most folks are expected to see their tax bill drop a bit next year. But other changes stemming from federal tax reform will spell bad news for your next return.
Here are four of the most impactful ways in which your 2018 return will differ from the one you just filed.
1. Good news: Lower tax rates
Many folks will enjoy lower tax rates for their next return.
Under the Tax Cuts and Jobs Act — the official name of the recent federal tax reform law — the rates for individuals will be as follows for 2018:
- 10 percent
- 12 percent
- 22 percent
- 24 percent
- 32 percent
- 35 percent
- 37 percent
For 2017, rates ranged from 10 percent to a maximum of 39.6 percent.
To find out what tax rate you will pay for 2018 based on your income and tax filing status, you can wade through the Tax Cuts and Jobs Act itself — the new brackets start on the first page. Or, you can check out the nonprofit Tax Foundation’s plain-English compilation of the 2018 tax brackets.
2. Good news: Higher standard deductions
The standard deduction will nearly double for tax year 2018. It will be:
- Married couples filing a joint tax return: $24,000 (up from $12,700 for 2017)
- Heads of households: $18,000 (up from $9,350)
- Single taxpayers and married individuals filing separate returns: $12,000 (up from $6,350)
If you’re eligible for it, the standard deduction reduces the amount of your income subject to federal income taxes, according to the IRS.
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.
3. Bad news: No personal exemption
The Tax Cuts and Jobs Act suspended the personal exemption, effectively making it unavailable for tax years 2018 through 2025.
This was a valuable tax deduction — worth $4,050 in 2017. But starting in 2018, it will be worth $0.
4. Bad news: Diminished deductions
The personal exemption is hardly the only tax deduction tax reform negatively impacted. Numerous other deductions were either killed, suspended or lowered.
For example, several itemized deductions have been eliminated. And one popular itemized deduction, that for mortgage interest, has been temporarily lowered for some folks, depending on when they took out their mortgage.
How do you feel about tax reform’s impact on your 2018 return? Sound off below or on Facebook.