En español | When you settle in to do your taxes this year — or sit down to talk to your accountant — you may be in for some surprises. The reason: This is the first year you’ll see the full effects of the sweeping tax reform bill that passed in late 2017.
That new law made a long list of adjustments to what you can and can’t write off, what you’ll owe and even which forms you can use. These five changes are among the biggest:
1. Chances are slim that you’ll itemize deductions.
The standard tax deduction filers could claim has nearly doubled its previous amount, so it is now $12,000 for single filers and $24,000 for married couples filing jointly. Plus, if you’re 65 or older and married, you can tack another $1,300 onto the standard deduction; as a single filer 65 or older, add $1,600.
At the same time, many itemized deductions have been eliminated or reduced. Most notably, the total deduction for state and local income and real estate taxes is capped at $10,000 (for singles and married couples filing jointly).
These changes could lead an estimated 90 percent of filers to take the standard deduction this year, up from the typical 70 percent, according to the Tax Policy Center.
For many people, this switch will mean less time digging up receipts and poring over bank and credit card statements to capture every single tiny deduction.
“It’ll be easier to figure out if you have to itemize,” says Patrick Daly, a CPA at the New York City accounting firm Citrin Cooperman. “Add up your charitable giving, mortgage interest and state and local taxes, and call it a day.” If that total is less than your standard deduction would be, chances are you can skip itemizing (one exception: if you have high medical expenses — see No. 4 below).
Keep in mind that some states let you itemize deductions when you file your state taxes even if you take the standard deduction on your federal return. States also may have different rules for what’s still deductible, so check.
2. Your tax bill might change for the better.
The tax law cut income tax rates through 2025. The top rate for the highest earners — what single filers would owe on taxable income over $300,000, or $600,000 for married couples filing jointly—went from 39.6 percent to 37 percent, for example, and the 28 percent tax bracket — for incomes between $82,500 and $157,500 for singles and $165,000 and $315,000 for marrieds filing jointly — is now 24 percent, and so on.
Those changes are expected to lower tax bills for a majority of filers. Last winter, the IRS issued new withholding guidelines for employers, putting more money into the paychecks of millions of Americans.
Still, other changes to the tax law may complicate that picture. While you’ll see a much higher standard deduction, you’ll no longer enjoy personal exemptions, which were worth $4,050 a person last year, a hit to big families who were entitled to an exemption for mom, dad and every dependent child. The cap on deductions for state and local taxes could lead to a higher tax bill for residents of states with high income taxes such as California, New Jersey, New York and Hawaii.
What’s more, the shifting income cutoffs that determine your tax bracket have left a few higher-income earners facing higher tax rates, says Cari Weston, director of tax practice and ethics for the American Institute of Certified Public Accountants. For example, single filers with taxable incomes between $157,500 and $200,000 will be in the 32 percent tax bracket, up from 28 percent.
This filing season, your likelihood of getting a refund — and the size of that refund — is more uncertain than normal. Some experts are predicting larger refunds overall, but not everyone should celebrate yet. Even if you did adjust the withholding from your paychecks after the new tax law took effect, that change might not have been enough to account for lost deductions or outside income. “There are going to be more people who are caught off guard,” says Weston.
Because of the uncertainty due to the new tax law, the IRS recently softened the rules for when you’ll owe an underpayment penalty if you didn’t have enough money withheld or paid via estimated taxes.
3. The tax forms are sporting a new look.
Remember the much-hyped “tax return on a postcard” proposal? Forms 1040A and 1040EZ are gone, and Form 1040 has been redesigned so that it fits on two half pages.
But if you’re still among the small group of filers who use paper forms, this doesn’t really represent much in the way of simplification. To squeeze the 1040 into half the space, the IRS just moved the actual work someplace else. “They added more complex worksheets to make the form simpler,” says Weston. “If you do your taxes by hand, you won’t like it.”
In fact, don’t count on taxes becoming much simpler any time soon. “Taxes is still a vocabulary we don’t use on a day-to-day basis,” says Brian Ashcraft, director of compliance for Liberty Tax Service. “We endure it one time a year.”
4. You have a better shot at deducting medical expenses.
Thanks to tax reform, you can deduct unreimbursed medical expenses that exceed 7.5 percent of your adjusted gross income for at least one more year. That threshold can be a high bar to meet, but it will go up to 10 percent for 2019 taxes.
For those shouldering nursing home expenses or other high medical costs, this deduction will be more accessible and valuable in your 2018 taxes. “If you have a bad medical year, this is a helpful way to help pay for it,” says Ashcraft.
5. You get a bigger break for the people you support.
Tax reform increased the maximum child tax credit (available for children under the age of 17) from $1,000 to $2,000 and also made it possible for some filers with higher incomes to claim this credit. Credits such as this one can be especially valuable because they cut your tax bill dollar for dollar. A deduction, on the other hand, just reduces the amount of income that's taxed. For example, a $2,000 credit saves you $2,000 in taxes, while if you’re in the 24 percent tax bracket, say, a $2,000 deduction only cuts your tax bill by $480.
Even if you don’t have younger children, you could benefit from supporting others. Tax reform has added a $500 credit for other dependents, including older children and more distant relatives. “A lot more people will be able to earn a credit,” says Ashcraft.