Reminder on how the new Tax Law affects your 2018 deductions
As we near the end of 2018, here is a reminder of the major change for tax filers next year:
- The biggest item of the tax law change is the caps on itemized deductions that will move more people to use the “standard” deduction:
- SALT taxes: state taxes, property taxes, sales taxes are going to be capped at a combined $10,000 deduction on your schedule A. This means if you are a high income earner that pays a lot of state tax or you pay a lot of property taxes, you will see a cap on total deductions which means higher income shown on your tax return.
- Mortgage Interest: interest on primary mortgages up to $1M is still grandfathered in for loans prior to 2018, loans taken out this year the interest will be capped on loans up to $750k
- Charitable Deductions: You can still deduct all charitable contributions, however if your charitable + mortgage interest + SALT taxes are less than $24k you will just use the Standard Deductions.
- Misc Itemized Deductions: These pretty much are eliminated, including moving expenses and unreimbursed job expenses (moving expenses still deductible for members of military).
Standard Deduction:
- Single $12,000 / married $24,000
- if over 65 add $1300 to that deduction
- kids under 17 you get a child tax credit of $2000 each. A credit is a dollar for dollar reduction in taxes owed.
Personal Exemptions:
- These have gone away with new tax law, sort of replaced with that Child Tax Credit above
Summary:
Unless you have a lot of mortgage interest and charitable contributions, odds are you will now just do a standard deduction.
NOTE:
If you are over 70 1/2 and required to do RMD’s, and you make charitable contributions but will fall into the standard deduction category – consider making your charitable contributions direct from your retirement account (IRA). These will go towards your RMD requirement and not be taxable as income when sent direct from your IRA.