New tax code has local professionals working overtime

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Now that the holidays and parties are over, people are looking ahead to the new year and getting ready to file income taxes. The tax reform law passed in late 2017 by Congress as the Tax Cuts and Jobs Act took effect Jan. 1, 2018, and could affect your federal income tax returns. There will be winners and losers under the new tax law, depending on individual circumstances.

“Several significant changes that taxpayers will see as a result of the new tax code are doubling the standard deduction, removal of the personal exemption, an overall reduction in tax rates and the appearance of the federal form 1040,” said Dean A. Cochenour, MBA, CPA, of Carey & Company, P.A.

A draft of the new federal 1040 form has been shortened to two half pages with 23 total lines, down from two full pages with 79 lines for reporting income and deductions. But there might be an additional six supplemental schedules to capture additional information that was previously in the first two pages of the return, Cochenour said.

HIGHER STANDARD DEDUCTION

According to the Internal Revenue Service, the standard deduction for married filing jointly and qualifying widow will be $24,000 — up from $12,700 in 2017 — while for single and married filing separately, it will be $12,000 — up from $6,350 in 2017. For head of household, the standard deduction will be $18,000, up from $9,350 in 2017. The amounts are higher for those older than 65 or if one or more taxpayers are blind. The standard deduction rates will increase slightly for tax year 2019.

“The potential for savings is very real for people who did not have many itemized deductions or were just above the standard deduction, which is doubled in most cases, unless they have several dependents,” said CPA Cynthia Taulbee, who lives in Bluffton. “In that case the elimination of the personal exemption can offset that increase.”

PERSONAL EXEMPTION ELIMINATED

The personal exemption of $4,050 for the taxpayer and dependents has been removed from the new tax code. Personal exemptions and other deductions reduce income subject to tax.

TAX BRACKETS REDUCED

There are seven tax brackets, but with slightly lower rates and adjusted income ranges, according to the IRS website.

“People who lowered their withholding expecting that taxes were going to go down may be surprised. They may have a higher taxable income, even at a lower tax rate,” said Robert J. Arundell of Minor, Haight & Arundell, P.C.

STATE AND LOCAL INCOME TAXES

“Deductions for taxes paid — like state income tax and property taxes on homes and cars — will be capped at $10,000,” Arundell said. “People will lose the deduction for any excess over $10,000.”

MORTGAGE LOAN INTEREST

“The change depends on the structure of the mortgage,” Cochenour said. “Home mortgage interest was deductible on acquisition indebtedness up to $1,000,000 incurred before Dec. 31, 2017. Under the new law, for tax years 2018 to 2025, the deduction is limited to interest on up to $750,000 of new acquisition indebtedness.”

However, home equity interest is not deductible under the new law unless the proceeds are used to substantially improve the property, Cochenour said.

CASUALTY LOSS

Casualty losses are only deductible for federally declared disaster areas. However, deductions for other losses, such as home fires or theft, no longer can be taken.

How do you know what the new tax law means to you? The best advice is to bring all your information to your tax preparer.

“Bring everything, even if you aren’t sure if it will apply,” Cochenour said.  “Many deductions are lost because people have not brought all their records with them.”

2019 TAX CHANGES

Several significant changes that taxpayers will see as a result of the new tax code are doubling the standard deduction, removal of the personal exemption, an overall reduction in tax rates and the appearance of the federal form 1040.


This article is intended as general information about changes to federal income tax returns for tax year 2018 and should not be interpreted as advice for readers’ specific situations. For complete information or questions, contact your tax preparer or financial adviser, and visit the IRS website at www.irs.gov.