How 2018 Tax Law Changes Affect You

How 2018 Tax Law Changes Affect You

Benjamin Franklin once wrote in a letter, “nothing can be said to be certain, except death and taxes.” This popular quote still stands true today, over 200 years later, but Franklin said nothing about changes to taxes. Every year, there are changes in legislation that affect how taxes are filed. Here are a few of the changes you can expect to see affecting your return in 2018.

Change in Standard Deductions

The standard deduction is the dollar amount that reduces how much income you’re taxed on. The standard deduction varies based on how much income you have as well as your filing status. Consult with your tax professional as to what this means to you, but in most cases, the standard deduction was increased for all tax filers by nearly double.

Education Tax Breaks

There was previously some talk about eliminating or at least reducing the amount of tax breaks that you would get for attending secondary education. While this specifically has not been eliminated, there have been some major changes to education tax, and the news is good. The bill has expanded the use of 529 savings plans funds to include other types of education besides college. For instance, 529 savings plan funds may now be used to pay for your child’s after-school tutor or their private school education.

Increase in Child Tax Credits

Parents of minor children, rejoice! The child tax credit has increased from $1,000 to $2,000 per qualifying child in 2018. For dependents who do not qualify for the $2,000 credit, there’s a $500 credit available instead. Dependents who do not qualify for the full $2,000 but may qualify for the $500 credit include elderly parents you’re taking care of, or children still living at home who are over the age of 18. If you’ve been on the fence about adding a child to your family, maybe the additional $1,000 you’ll get back on your taxes will make a difference.

How 2018 Tax Law Changes Affect You

Mortgage Insurance Premiums

If you bought a house after December 2017, you can only deduct the mortgage interest you paid throughout the year if your home was under $750,000. If you have any home equity debt, don’t expect to be able to deduct any of that interest. According to The Motley Fool, in 2018, home equity debt up to $100,000 can be deducted, but not the interest paid on the home equity debt itself.

Retirement Savings Contribution Limits

Do you participate in a retirement plan through your employer? You’ll be able to contribute exactly $500 more this year than last year. Previously, the maximum contribution to any retirement savings account was $18,000 but is now $18,500. That should give you a little more flexibility with your free time in your retirement years. It’s best to consult with a finance professional or your tax professional about your contribution limits and what kind of retirement account structure is best for you. A 401(k) isn’t going to work best for everyone, and there are many other types of retirement accounts to consider.

Because of Internal Revenue Service updates and tax reform, your tax situation is expected to change from year to year. Some of these changes are positive, some less than, but it’s best to stay as up to date as you can to avoid any unexpected surprises.