I shout out to my Fellow Enrolled Agents who spent their holidays reading the newest tax laws ! While, we as Enrolled Agents seem to eat and breathe tax laws, some take the passion further and for that I am grateful as my mind was on the tax returns that needed to be completed for 2017.
Many questions came to us during the conferences that cobbled together two bills and we had no answers. In the next couple of blog posts I will simplify the tenants that are the most common to individuals. Businesses are a separate set of issues/questions.With this information you can ask us or your professional tax preparer on your specific income:
Q: I used to use a Schedule A, Itemized Deductions, now they are saying that I cannot use this to lower my taxes.
A: Actually this was one of the benefits to the tax bill as those folks who previously barely had enough to itemize or could not itemize at all. The standard deduction is now as follows:
Single ( unmarried individuals or those who have lived apart from their spouse MORE THAN 6 months) $12,000
Head of Household ( unmarried individuals with dependents) $18,000
Married Filing Jointly ( legally married NOT Domestic Partners) $24,000
Those over 65 years of age get an additional $1,250 added to their standard deduction
Q: I have children under 16 years old and now they say I get no extra deductions reducing my income.A: You are speaking of exemption amounts, and yes that has gone away. But in its place is additional credit for children under 17 the credit has doubled to $2,000 per child. In addition, if your income is wiped out by the standard deduction and credit for children UP TO $1,400 of the credit will be refunded to you. High income earners will now be able to take advantage of this credit to assist in off-set of taxes as the income limit is now $400,000
Q: What about family members that live with me? I could get an exemption for them before.
A: If your family member qualifies as your dependent and is NOT your child ( parent, sibling, etc) you will receive a $500 credit reducing your tax liability.
Q: Back to itemizing. I have a home mortgage and property taxes. How does this effect me?
A: The good news is that if you had home mortgages of $1 million dollars or less ( held before December 15, 2017) and you have more than the standard deduction you can still itemize. Home equity loans that were in place prior to the bill are also available to be deducted as long as the original loan was for remodeling or repairing your home. Your property taxes paid on your residence are also allowed.
Q: What was this about state taxes not being deductible?
A: This is NOT referring to property taxes. It is referring to the state and local taxes you pay, generally from your W2 withholding, and previous year tax bills from your individual state return. It is capped at $10,000 deduction.
Q: Medical bills?? I haven’t been able to take them in the past few years.
A: The current bill rolls the amount you must be over to take the deduction is back to 7.5% of your adjusted gross income. Only the very ill or elderly paying for out-of-pocket medical expenses have been able to use this.
Q: Can I still give to my favorite charities?
A: Of course, just remember that if you do not itemize under the new rules these are truly gifts of charity you are giving and not a way to lower your taxes.
As a take away let us remember that when we itemize the tax savings of these items is based on our tax bracket not generally dollar for dollar. That is why I tell my clients that I like credits better than deductions as they off-set tax liability dollar for dollar.
