IRS Changes for 2018 Taxes
December 27, 2018Special & Supplemental Needs Trusts and Government Benefits
January 6, 2019As covered previously the Tax Cuts and Jobs Act of 2017 contained several provisions that affect the majority of Americans.
This article summarizes several other changes made to the tax code in its first major overhaul since 1986.
Standard Deductions
The standard deduction ensures every taxpayer has at least a portion of their yearly income that is “shielded” from federal income taxation. Many states also offer similar deductions. In both cases, federal or state, a person can elect to take the standard deduction which rises most years in an attempt to match inflation or to itemize their deductions.
NOTE: These tables are best viewed on tablet or larger screen.
| Year | Standard Deduction for Individuals/ Married Persons Filing Individually | Standard Deduction for Married Couples | Standard Deduction for Heads of Household |
|---|---|---|---|
| Pre New Law (2017) | $6,500 | $13,000 | $9,550 |
| 2018 | $12,00 | $24,000 | $18,000 |
| 2019 | $12,200 | $24,400 | $18,350 |
New Income Tax Rates
In addition to increasing the standard deduction amount, the new law lowers the tax rate on most tax brackets.
| Taxable Income for Individuals | Taxable Income for Heads of Households | Taxable Income for Married Couples filing Jointly | Taxable Income for Married Couples Filing Separately | Old Tax Rate | New Tax Rate |
|---|---|---|---|---|---|
| $0-9,700 | $0-13,850 | $0-19,400 | $0-9,700 | 10% | 10% |
| $9,701-39,475 | $13,851-52,850 | $19,401-78,950 | $9,701-39,475 | 15% | 12% |
| $39,476-84,200 | $52,851-84,200 | $78,951-
168,400 |
$39,476-84,200 | 25% | 22% |
| $84,201-160,725 | $84,201-160,700 | $168,401-321,450 | $84,201-160,725 | 28% | 24% |
| $160,726-204,100 | $160,701-204,100 | $321,451-408,200 | $160,726-204,100 | 33% | 32% |
| $204,101-510,300 | $204,101-510,300 | $408,201-
612,350 |
$204,001-306,0175 | 35% | 35% |
| $510,301 and up | $510,301 and up | $612,351 and up | $306,176 and up | 39.6% | 37% |
While the tax brackets themselves were also slightly modified it is more important to remember that only income in a bracket is taxed at that rate.
For example, a Married Couple filing jointly with an income of $150,000 would pay a 10% tax on the first $19,400 of declared income, 12% on the amount declared between $19,401 and $78,950, and 22% only on the remainder.
It is also important to remember, unlike many other provisions in the bill, these tax rates are only valid until 2025 unless congress chooses to extend them at that time.
Medical Expense Deduction
After large public backlash towards the idea of its removal, not only was the Medical Expense Deduction kept as a part of the tax code the amount allowed to be deducted was increased for 2017 and 2018.
Any medical expense over 7.5% of adjusted gross income could be deducted for those two years. Now in 2019, it is back to the previous 10% threshold.
Home Mortgage Interest Deduction
On the less consumer-friendly side is a decrease in the cap of the Home Mortgage Interest Deduction. The previous limit on deductions of interest on mortgage interest was decreased from $1 million to $750,000 for any mortgage signed after December 15, 2017.
The Home Equity Loan Interest Deduction was also removed from the tax code.
These changes to the tax law are wide-reaching, numerous, and can greatly impact your future. It is therefore important to examine your financial situation and its effect on your future care with professionals in the area.
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Mr. Abraham is an experienced attorney and founding member of the Law Office of Richard K. Abraham. The Sparks, MD office of the firm concentrates its practice in Estate Planning, Elder Law, Probate, Medical Assistance (Medicaid), Guardianship, Asset Preservation and Fiduciary Representation.
He is an active member in a number of professional organizations that focus on law, the senior community, and estate planning. He works with clients in Central Maryland, especially in Towson, Hunt Valley, Lutherville/Timonium, Parkville, White Marsh, Bel Air & Northern Baltimore City.
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