How The New Tax Law May Affect Your Income Tax Return

You may notice several of the following items that may affect your individual income tax return:

  • A change in the tax rates which should result in most people paying less tax during the year. However, the increase in the standard deduction, suspension of personal exemptions, an increase in the child tax credit and the limiting or discontinuing certain deductions may have an overall effect on your bottom line.
  • Because of the change in rates and the way taxable income is calculated, you may find that if you have unearned income and haven’t made estimated payments, you may owe an estimated tax penalty.
  • Changes have occurred to the Standard Deduction. Beginning in 2018, the standard deductions for each filing status has increased. However, the deduction for personal exemptions has been suspended.
  • Many changes have been enacted which affect Itemized Deductions. People who have itemized in the past may no longer find it advantageous to do so. Some changes regarding Itemized Deductions are:
    • The deduction for state and local income, sales and property taxes has been modified by a limitation on the deduction to $10,000 ($5,000 if Married Filing Separate). Any amount in excess of $10,000 is not deductible.
    • A deduction for home mortgage and home equity interest has been modified. Interest paid on most home equity loans is no longer deductible unless the loan proceeds were used to buy, build or substantially improve the home.  Further, there is a new dollar limit on total qualified residence loan balances based upon the date the loan was taken, i.e., on or before December 15, 2017 ($1,000,000 cap on deductible interest) or after December 16, 2017 ($750,000 cap on deductible interest).
    • Casualty and theft losses have been modified to allow deductions only to the extent that they are attributable to a federally declared disaster.
    • The deduction for miscellaneous itemized deductions has been suspended. This means that investment management fees, safe deposit box fees, tax preparation fees among other expenses are no longer deductible.
  • The Alternative Minimum Tax (AMT) exemption amount has increased.
  • Student loans discharged due to death or disability are no longer included in income.
  • A traditional IRA, SEP or SIMPLE can no longer be recharacterized in a conversion to a Roth IRA.

If you have questions regarding tax laws, the Interactive Tax Assistant may help to provide answers to a number of questions.  Visit irs.gov for further assistance.

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Kay Sowa

About the Author

Kay Sowa is a paralegal in the Trusts and Estates Group at Capehart & Scatchard, P.A. She is an IRS Enrolled Agent as well as a Certified Trust and Financial Advisor. She oversees the trust and estate administration practice for the firm. She is an accomplished author and lecturer who has frequently spoken on behalf of a number of organizations including the National Business Institute and the Institute of Paralegal Education.

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