President Trump signed the Tax Cuts and Jobs Act in December of last year, but the income tax credits, deductions, and individual tax rates aren’t applicable until the 2019 tax-filing season. Various factors, such as your tax bracket, can influence whether your taxes will increase under the new tax code. Below are some indicators that could signal an increase on your tax bill.
Do You Have a Large Family?
The new tax code eliminated personal and dependent exemption deductions, which was estimated to have been $4,150 each in 2018 under previous law. However, standard deductions were nearly doubled. For 2018-2025 the deductions are as follows:
- $12,000 for single (previously $6,350)
- $24,000 for joint-filing marries couples (previously $12,700)
- $18,000 for heads of households (previously $9,350)
The elimination of dependent exemptions hurts some families and benefits others. Large families, who don’t benefit from increased standard deductions, will be hit the hardest.
Are You an Average Taxpayer?
If you have a conventional job, file a W-2, and don’t own a lot of property or foreign investments, your taxes won’t likely increase. Instead, you should see a modest decrease as a result of lower tax rates, increased standard deduction, and an increased child tax credit. Despite this, however, there are thousands of potential tax situations that could affect the average taxpayer differently (i.e. a wealthier couple with children who itemize state and local taxes would be limited to a $10,000 deduction under the new law – a loss of $20,000 in deductions – and would likely have higher taxes under the new tax code).
Are You Withholding Enough from Your Paycheck?
The IRS changed the tax withholding tables back in February. The tables are calculated by how much income you earn and the number of allowances you claim. If you aren’t withholding enough from your paycheck, you could end up owing taxes. Check the tax withholding tables on IRS.gov to determine how much income tax should be withheld from your paycheck.
Do You Have Older Children?
The new tax code increases the child tax credit from $1,000 to $2,000 per child under the age of 17. Taxpayers with children over 17 only receive a $500 tax credit.
Do You Have High Property Taxes?
Under prior law you could claim an itemized deduction for an unlimited amount of personal state and local income and property taxes. So, a big property tax bill could be completely deducted if you itemized. However, under the new tax code, itemized deductions for personal state and local property taxes and personal state and local income taxes are capped at $10,000 ($5,000 if you use married filing separate status).
Even considering the above factors, with the myriad of potential tax circumstances and the complexity of the changes implemented by the Tax Cuts and Jobs Act, it’s difficult to predict how your taxes will be affected until you run the numbers.
If you have any questions about how to plan for your 2018 tax return, please feel free to contact me at jmiller@mkrcpas.com.
