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The first filing deadline under the new Tax Cuts and Jobs Act is this April, and several changes mean you may no longer qualify for some tax breaks and may get to take advantage of some new ones.
What's in the Tax Reform Bill?
The Tax Cut and Jobs Act, passed at the end of 2017, was a major overhaul of the tax code. It took away personal exemptions and increased the standard deduction, while also increasing the child tax credit and adding other breaks.
Some of the implemented changes are bigger or more meaningful than others. Here's how the biggest changes could impact your return.
Income Tax Rates
Income tax is how the government makes most of its money. How much you pay in taxes comes down to the updated rates. The federal income tax rate will now be:
| Marginal Rate | Individual with Taxable Income Over | Filing Jointly with Taxable Income Over |
|---|---|---|
| 10% | $0 | $0 |
| 12% | $9,525 | $19,050 |
| 22% | $38,700 | $77,400 |
| 24% | $82,500 | $165,000 |
| 32% | $157,500 | $315,000 |
| 35% | $200,000 | $400,000 |
| 37% | $500,000 | $600,000 |
Alternative Minimum Tax
The Alternative Minimum Tax, or AMT, was created in the 1960s to make sure high-income earners paid enough in taxes. With the AMT, higher earners have to calculate their tax liability twice: once under the regular tax rate and once under the AMT, then pay whichever is more.
Under the new law, the AMT exemption increased to $109,400 for joint filers, $54,700 for married couples filing jointly and $70,300 for other individual taxpayers. That exemption is the amount you can deduct before calculating your AMT liability.
The law also increased the phase-out of the exemption from $160,900 to $1 million for joint filers. The IRS estimates AMT filings will go from 10 million households to 1 million, according to the Tax Foundation.
Capital Gains Rates
Long-term capital gains used to be calculated by income tax brackets, but the tax law got rid of that setup. Now the brackets look like this:
| Rate | Single Filers with Gains Over | Joint Filers with Gains Over |
|---|---|---|
| 0% | $0 | $0 |
| 15% | $38,600 | $77,200 |
| 20% | $425,800 | $479,000 |
Child Tax Credit
For 2018, the child tax credit doubles from $1,000 to $2,000 per child 17 years of age and younger. The refundable portion, which is what you would receive if you were getting a refund, is $1,400.
Also, the phase-out income level increased from $110,000 for married couples filing jointly to $400,000, allowing more families to claim the credit.
Personal Exemptions
Before the new tax law, filers could claim an exemption for themselves, their spouses and dependents. With the Tax Cuts and Jobs Act, there are no more personal exemptions.
Instead, the new law expanded the child tax credit and the standard deduction.
Miscellaneous Expenses
If you've ever moved, you were able to claim moving expenses as a deduction on your taxes. But the new law has removed moving-related expenses.
Job-related expenses, such as uniforms, traveling for work and business-related meals, are no longer allowed to be written off either. Before, you could itemize these deductions on your tax return.
What Does the New Tax Law Mean for Me?
Depending on your income level, family and other factors, your tax return could see a bigger return—or a bigger bill. In some situations, certain changes can work to cancel each other out, although not always entirely.
Large families, for instance, will lose big deductions in the form of personal exemptions but can take advantage of a larger child tax credit, which offers a dollar-for-dollar reduction of your tax bill.
It's important to understand your particular situation to get an idea of how the new law has affected you. If you receive a smaller refund this year, it may simply be because you had less tax withheld in 2018. But it can also mean that you also lost some other important tax breaks.
If you're not sure exactly what the new tax law means for you, consider working with a tax professional to get a deeper look at your situation.
How Do Taxes Impact My Credit Report?
In 2017, the three major tax bureaus—Experian, TransUnion and Equifax—took steps to remove civil judgment records, including tax liens, from credit reports.
A tax lien is when the government can lay claim to your property when you fail to pay the IRS. Even if you paid the debt, it could stay on your credit report for up to seven years. While the IRS can still place liens on your property, they'll no longer negatively affect your credit.
Next Steps
Whether or not you've already filed your 2018 tax return, it's important to know how the recent tax reform can affect you. Consider working with a tax professional to get a better understanding of what changes impact you and how.