Doing your taxes from 2018 could look slightly different than it did last year. There were more than 600 rule changes that took place by the Tax Cut and Jobs Act, which was passed by Congress in late 2017. Those changes also made industry experts concerned because of the government shutdown on December 22nd of 2018. However, this was resolved by President Trump announcing that the Government will partially be up and running on January 25th, making it possible for taxes to be filed as early as the 28th. Tax filers need to understand that it won't be the usual system used in previous years due to the changes.
"It'll be a little bit of a surprise and a learning process as they file their first tax return under the new tax rules," said Joseph Rosenberg, a senior research associate at the nonpartisan Tax Policy Center in Washington, D.C. This forms a lot of questions for tax filers wondering what the new system brings.
"Will I or won't I need to itemize?" Many of us have heard about a much higher standard deduction under the new tax rules. Unfortunately, there is no set in stone answer.
"You still want to run your numbers both ways," said Jackie Perlman, tax research analyst at H&R Block's Tax Institute, meaning you should try to itemize and get whatever money back that you can.
About 10 percent of tax filers this year will itemize deductions like their mortgage payments, or property taxes. However, that is lower than it was in previous years by 30 percent. Families who own a home will want to review whether they'd still itemize to lower their tax bill. You will need more deductions to exceed the new higher standard deduction, which is nearly double from what it was a year ago. Moreover, you will also face new limits relating to the deduction you can take on property and income taxes.
This will create some confusion, and just to let to you know, you are not losing your deduction. However, you will face new limits. For 2018 through 2025, the deduction is limited to $10,000 (or $5,000 if married filing separately) for individuals who paid state and local real estate taxes, personal property taxes and income taxes. Middle to higher income families who live in California, New York, New Jersey, and Illinois could be vulnerable. States with higher average incomes and higher than average state tax burdens would be affected.
But, for some tax filers, there is better news. The Alternative Minimum Tax is going away. The AMT is not entirely dead and is still in effect. However, many tax filers will no longer be subjected to AMT this year and for future years to come. The AMT was created in 1969 to ensure high-income taxpayers paid a minimum amount and did not benefit too much from deductions. Now, the AMT will only affect about 0.4 percent of households, those with incomes between $200,000 and $500,000 on their 2018 tax return.