Now that the 2017 tax season is over for most individuals and businesses, it’s time to turn attention to next year. Especially because the Tax Cuts and Jobs Act of 2017, which is considered to be the largest tax overhaul in 30 years, will have a significant effect on income tax returns next year.
The law will eliminate and change some deductions for the 2018 tax year. That means that when you filed your return just recently, that will be the last time you'll see several deductions on your tax forms, at least until 2025.
Here are a few of the deductions involved that will have the biggest impact on most individuals and businesses:
Standard $6,350 deduction
This might be the biggest piece of good news for you as a taxpayer. The standard deduction will increase starting next tax year. While single taxpayers were only eligible for a $6,350 standard deduction this year, that amount will nearly double in 2018 to $12,000 for individuals.
Married couples will get a standard deduction of $24,000 for 2018, up from $13,000 for 2017. Head of household filers will see a bump in their standard deduction from $9,550 to $18,000 in 2018.
Now for a little bad news. You will lose your $4,050 personal and dependency exemptions. These aren’t technically deductions, but these exemptions allow you (taxpayers) to subtract $4,050 from your taxable income for each dependent you claim.
The increase in the child tax credit my help offset this loss of personal exemptions, but it might not help everyone.
Unlimited state and local tax deductions
Starting in 2018, deductions for state and local taxes – known as SALT deductions – will be capped at $10,000. While this will certainly benefit you if you live in Ohio or Pennsylvania, residents in South Florida, New York and California and other states where people pay high property taxes, will see the biggest boost.
Miscellaneous itemized deductions
Unreimbursed work expenses is just one of several miscellaneous itemized deductions that have been disallowed under the new law. Also gone are the unreimbursed qualified employee education expenses deduction, itemized deductions, include costs related to tax preparation services, investment fees and professional dues.
Deduction for moving expenses
If you relocated for a new job that year, you might have been able to deduct your moving expenses from your 2017 taxes, assuming you met criteria laid out by the IRS. This criteria states you must be moving to a job location at least 50 miles farther from your old house than the distance from your old house to your old job.
However, for 2018, that deduction is eliminated for everyone except armed forces members.
In the past, couples had the option to set up alimony agreements to allow the person making payments to deduct that money from their federal taxes. That won't be an option in 2019. The deduction is being eliminated for any divorce commencing after Dec. 31, 2018.
While some of these tax changes could benefit you, it’s clear that some are disappointing. If you think you’ll get the short end of the stick because of these changes, there is a silver lining - many provisions of the Tax Cuts and Jobs Act will expire in 2025 unless Congress votes to extend them. That means it could just be a matter of time before cost-saving deductions make a comeback.
To find out specifically how these changes (and others), will affect you going forward, speak to your accountant.