Key Tax Reform Changes of 2018!

January 4, 2019

With the 2018 Tax Cuts and Jobs Act, President Trump made the most extensive changes to U.S. tax law in more than thirty years. According to Encino tax consultants, here’s what taxpayers need to know about how the new law will affect their taxes this year.

Changes in the Standard Deduction

Previously, married couples filing jointly could opt to take the standard deduction of $13,000 or itemize their deductions to claim a higher amount. For 2018, the standard deduction for this group has been raised to $24,000. The standard deduction for individual taxpayers has been raised from $6,500 to $13,000.

Even if you itemized your deductions in the past, it may no longer make sense to do so. Encino tax advisors can help you determine which option is more advantageous.

Increased Child Tax Credit

Taxpayers can claim a $2,000 credit for each child younger than age 17, doubled from $1,000 in previous years. Older dependents are subject to a $500 credit.

However, taxpayers could previously claim a $4,050 personal exemption for each dependent, which has been eliminated for 2018.

Deduction Cap for State and Local Income Tax

Homeowners who pay state and local income tax could previously deduct this amount from their federal taxes with no limit. For 2018, this deduction has been capped at $10,000.

Lowered Threshold for Mortgage Interest Deductions

The amount of mortgage interest that can be claimed as a tax deduction is now capped at $750,000, down from $1 million last year. In addition, interest on home equity loans is no longer tax-deductible.

Expansion of 529 Savings Plan

The 529 Savings Plan is a tax-free way for parents to save for their children’s college educations. Funds in this investment account are not taxed upon withdrawal when used for qualifying expenses. In addition to college and university tuition, 529 plans can now be used to fund private K-to-12 education.

Los Angeles tax preparation services can help you understand exactly how these changes will affect your tax return. Professional CPAs will recommend steps to maximize your refund.