Each year, there are changes and various and tax-related provisions made by the IRS that can affect taxpayers and they way they file their taxes. As the authority on tax preparation and monthly bookkeeping services in Philadelphia, Brennan and Company CPA, PC helps our clients stay aware of these changes through reliable resources and trusted information found here on our blog.
In fact, this year, the standard deduction amount has been increased to partially compensate for the elimination of the personal exemption, and the elimination of particular itemized deductions. For the 2018 tax season— filings in calendar 2019—the standard deduction rate has been increased for every single filer.
Single or Married Filing Separately —$12,000
Married Filing Jointly or Qualifying Widow(er) —$24,000
Head of Household —$18,000
The standard reduction of itemized deductions and deduction change is one of the single most important considerations for filing a new Form W-4.
The following changes, including the elimination of an itemized deduction limitation (through 2025) if the adjusted gross income is over a certain amount, were made to 2018 itemized deductions that can be claimed on your Schedule A:
You can deduct the part of dental and medical expenses that is more than 7.5 percent of the adjusted gross income (although this reverts back to more than 10% starting in 2019).
Your deduction of state and local income, property, and sales taxes is limited to a combined and total deduction of $10,000 ($5,000 if married filing separately).
Any job-related expenses or other miscellaneous itemized deductions that were subject to the 2 % of AGI floor can no longer be deducted Other items on Schedule A can still be deducted. This includes things such as gambling losses (up to your gambling income).
The deduction for a home mortgage interest is limited to interest on up to $750,000 of home acquisition indebtedness. The new limit does not apply on grandfathered mortgages existing on December 14, 2017, or if there was a binding contract to close on a home after December 15, 2017, and closed on or before April 1, 2018, in which case and the prior limit of loans up to $1,000,000 would apply.
You can not deduct the interest on a HELOC (home equity line of credit indebtedness) any longer, which means indebtedness that is not incurred for the purpose of building, buying, or significantly making improvements to the qualified residence secured by the indebtedness. (If a loan was incurred for these home improvement or expansion qualifying purposes, it might still qualify under the rules of home mortgage interest deduction, to the extent of those applicable limits.)
The limit on cash for charitable contributions has been increased from 50 percent to 60 percent of an individual’s adjusted gross income.
Moving expenses no longer deductible.
One can not deduct moving expenses unless they are a member of the Armed Forces and on active duty.
Child tax credit and additional child tax credits.
For the year 2018, the maximum credit increased to $2,000 per qualifying child. The maximum additional child tax credit has been increased to $1,400. In addition, the income threshold where the credit begins to phase out has been raised to $200,000 (or $400,000 if married and filing jointly).
Credit for other dependents.
A new credit offering up to $500 is available for each of the dependents who don’t qualify for the child tax credit. Additionally, the maximum income threshold at which the credit begins to phase out has been increased to $200,000 (and $400,000 if married and filing jointly).
A Social security number (SSN) is required for child tax credit.
An individual’s child must have an SSN issued before the due date of your 2018 return (including extensions) in order to be claimed as a qualifying child for child tax credit or additional child tax credit. If the dependent child has an ITIN, and not an SSN, issued before the due date of the 2018 return (including extensions), you may be able to claim the new credit for other dependents.
Alimony is no longer be deductible by the payer, and is not includible in the gross income of the former spouse for agreements that were executed or modified after December 31, 2018.
For more questions or information on the changes to this year’s tax filing, call your trusted Philadelphia bookkeeping firm, Brennan and Company CPA, PC at 215-951-5585 today.