In late 2017, the President signed into law a tax reform bill that makes major revisions to the United States tax code. The new law changes the way individuals and businesses will calculate their share of taxes on an annual basis. One of the most important features of the law that has changed starting in 2018 is the standard deduction.
The standard deduction is an amount that reduces taxable income for individuals if they do not choose to itemize. Under the new tax law, this amount is almost doubling, regardless of the taxpayers filing status (Single, Married filing joint, etc.). Single filers will receive a standard deduction of $12,000 (up from $6,500) and Married filing joint filers will have a deduction of $24,000 (up from $12,600).
Although it has been sold as a tax cut, it is more of a simplified method for many taxpayers. Raising this deduction up will reduce the number of individuals that will itemize deductions because the taxpayers itemized deductions will not exceed the new standard deduction.
While the standard deduction has nearly doubled for all individuals that file a tax return, the personal exemptions have been eliminated. These amounts were $4,050 per person claimed on a tax return. Therefore, the deductions that an individual filing single claimed on a tax return was $10,550 ($4,050 personal exemption plus $6,500 standard deduction).
Increasing the standard deduction and eliminating the personal exemption will make tax filing for some individuals simpler, but there will still be many filers that itemize their deductions in arriving at taxable income. Planning for these items is important and should be done with a qualified professional that has your best interest. Be sure to contact one of the professionals at TH&W if you have questions or concerns regarding your unique situation.