If you watch the news, you know that Congress passed a major tax reform bill several months ago that could alter your situation for the 2018 tax year. The Tax Cuts and Jobs Act is over 500 pages and 72,000 plus words long. In this blog, we will work to break down two significant changes.
The personal exemption has been eliminated under the new tax bill. In 2017, the personal exemption was $4,050 per person. That means a family of four would deduct $16,200 from their taxable income, lowering the family’s overall tax burden. This loss of personal exemptions can be discouraging for lower- and middle-income Americans, especially because they used to be able to combine their personal exemptions with their standard deduction. High-income families are not as impacted, because the value of the personal exemption for their families decreased as they reached higher joint income levels.
While the loss of the personal exemption occurred, the standard deduction was nearly doubled with the new tax bill. The standard deduction for singles raised from $6,350 in 2017 to $12,000 in 2018. For married couples filing jointly, it raised from $12,700 to $24,000. Although this increase softens the blow of losing the personal exemption, it will not be beneficial for everyone, especially for the families who had two or more children that used to benefit from combining the personal exemption with the standard deduction.
So what does this standard deduction change mean for you? Is the IRS discouraging itemizing on your tax return? Possibly. This change means less people will need to itemize their taxes this year. Between compiling receipts, invoices, and expenses, itemizing your taxes can take a long time. In 2017, if your expenses totaled more than $6,350 as a single person or $12,700 for a couple filing jointly, it made sense to itemize. With the number doubling in 2018, itemizing is not as appealing for singles with less than $12,000 and families with less than $24,000 in expenses this year.