Here is a brief overview of the 2018 IRS Tax Reform. It is not the most comprehensive list but these are, what I believe to be, the changes that will affect the majority of Americans.
None of the changes apply to 2017
Many people assume that the IRS Tax Reform took effect immediately. It’s important to know that it does not affect your 2017 tax return. You won’t have to worry about the 2018 IRS Tax Reform until you file your tax return in 2019.
You'll get more money back if you have kids
One of the most well-known facts about the new IRS Tax Reform is that there was an increase in the child tax credit. This is a credit you receive if you have a dependent under the age of 17. The credit was doubled, from $1,000 to $2,000 per child. The refundable portion of the credit was also increased to $1,400.
The IRS Tax Reform includes tax cuts for most of us
There’s been a lot of debate about who benefits the most from this version of IRS Tax Reform, the wealthy or the rest of us, but it a safe bet that you will pay less in taxes. At least until 2025. The tax cuts for individuals is only temporary. Corporate tax cuts have been made permanent in 2018 IRS Tax Reform.
Corporations benefit greatly from IRS Tax Reform
The new IRS Tax Reform lowers taxes for corporations. Corporations will now pay a flat rate of 21 percent on all profits, down from as much as 35 percent under the previous law. The new IRS Tax Reform also eliminates the alternative minimum tax (AMT) for corporations. AMT is what kept corporations from paying too little taxes.
Some Businesspersons will get a 20% deduction
The new IRS Tax Reform will allow individuals who have qualified business income from pass-through entities such as S Corps and Partnerships to enjoy a 20% deduction.
You can still deduct property and local taxes, up to a point
You still will be able to deduct property taxes, state taxes, and local taxes after the IRS Tax Reform. However, these deductions will be capped at $10,000. This could mean higher taxes for those people living in certain places, such as California and New York. States are still in discussions about how this will affect your state tax returns.
Many deductions are now gone
Under past tax law, you could deduct moving expenses from your taxes. You could deduct many work-related expenses that were not reimbursed from your employer. You could even deduct any costs you incurred when you did your taxes. These deductions and many others are gone.
Standard deductions have been increased
As we indicated above, the new tax bill does allow for some itemized deductions, but the standard deduction has been doubled, to $12,000 for single filers, $18,000 for heads of household, and $24,000 for married couples filing jointly. For many people — especially those who don’t own homes — it may be hard to collect the amount of deductions to make itemizing worthwhile. The Joint Committee on Taxation said that 94 percent of taxpayers may now choose to take the standard deduction, up from 70 percent under the previous law.
There are no more personal exemptions
Under the previous tax law, the IRS allowed you to reduce your tax liability by claiming a personal exemption. This exemption was $4,050 during the last two years. The new tax law eliminates personal exemptions and instead significantly boosts the standard deduction ($12,000 for singles and $24,000 for married couples). For most people, this still will result in lower taxes.
The 'marriage penalty' is almost gone
Under the previous tax law, it was possible for people to be stung by higher taxes if they got married. That’s because in some instances, a couple with similar incomes filing jointly would jump to a higher tax bracket. Under the new law, the thresholds for filing jointly are exactly double those for single filers, except for married couples earning more than $300,000.
The health care individual mandate may be eliminated
Under the Affordable Care Act, anyone who did not purchase health insurance was subject to a penalty of 2.5 percent of your income or $695, whichever was higher. That penalty will go away in 2019 under the new tax law.