Many questions came to us during the conferences that cobbled together two bills, and we had no answers.
In the next few articles 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 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:
Note: Those over 65 years of age get an additional $1,250 added to their standard deduction
||Unmarried individual or those who lived apart from spouse more than 6 months during the year
|Head of Household
||Unmarried individual with dependent(s)
|Married Filing Jointly
||Legally married, not Domestic Partners
|Married Filing Separately
||Legally married but not filing with spouse
Q: I have children under 16 years old and now they say I get no extra deductions reducing my income.
You are referring to 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 the offset of taxes, as the income limit is now $400,000.
Q: What about family members who live with me? I could get an exemption for them before.
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.
: Back to itemizing. I have a home mortgage and property taxes. How does this affect me?
The good news is that if you had home mortgages of $1 million dollars or less (held before Dec. 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 able to be deducted, only if 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 tax not being deductible?
This is not
referring to property tax; 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. This deduction is capped at $10,000.
Q: Medical bills? I haven’t been able to take that deduction in years.
Under the old rules, you had to spend more than 10 percent of your income on medical bills before you could claim a deduction. The new rule lowers that percentage to 7.5 percent!
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 takeaway, let us remember that itemized deductions do not equal dollar-for-dollar tax savings!
Karen S. Durda, EA, President of Century Accounting and Tax Services, Inc., has been in the profession since 1984. As an Enrolled Agent credentialed by the Treasury Department, she has the rights as afforded by Congress to represent individuals and businesses before tax authorities. Since May 2012, she has also had the distinction of being a Dave Ramsey Endorsed Local Provider, assisting in budgeting and financial peace for a four-county area and parts of Myrtle Beach.As a Qualified Business expert with the New Hanover County courts, she has experience and knowledge of various scopes of professions and industries, such as medical, health services, legal, construction, retail, real estate, auto sales and service, insurance and restaurant. Continuous tax law courses throughout the year keep her up-to-date on all tax rules, regulations and law changes, as well as business trends, to better serve her clients.