Top 5 2018 Tax Changes for Individuals

Now that tax season has finished, it is important for individuals to start to plan and know how their taxes will change going forward. The new tax bill that was signed changes many aspects for many Americans. This article will let you know the tax changes that are the most impactful for the average American and the effect the changes will have on your tax bill next year.

  1. Tax Brackets Changes:

One of the most notable changes are that the tax brackets have changed. While there are still 7 brackets for the 2018 year, the marginal tax rate has decreased, for the most part. Here is what the new tax brackets will look like in 2018

Marginal Tax Rate Single Married Filing Jointly Head of Household Married Filing Separately
10% $0-$9,525 $0-$19,050 $0-$13,600 $0-$9,525
12% $9,525-$38,700 $19,050-$77,400 $13,600-$51,800 $9,525-$38,700
22% $38,700-$82,500 $77,400-$165,000 $51,800-$82,500 $38,700-$82,500
24% $82,500-$157,500 $165,000-$315,000 $82,500-$157,500 $82,500-$157,500
32% $157,500-$200,000 $315,000-$400,000 $157,500-$200,000 $157,500-$200,000
35% $200,000-$500,000 $400,000-$600,000 $200,000-$500,000 $200,000-$300,000
37% Over $500,000 Over $600,000 Over $500,000 Over $300,000

The new brackets are structured to have a lower marginal tax rate than the prior years and also keeps the brackets proportional for single and married individuals. This means that the MFJ column are 2x the single amounts (for all but the last 2 brackets).

  1. Standard Deduction Doubling:

The standard / itemized deduction is the other big change that will have an impact on the amount of tax you will pay going into next year. There are many deductions that have been reduced or eliminated. First, the standard deduction is being doubled. If you have not been someone who uses the itemized deduction, the increase will decrease the amount of tax you owe. If you are someone who was barely able to itemize, this is also something that will lower your taxes owed. Here is the new standard deduction chart

Tax Filing Status Previous Standard Deduction (2017) New Standard Deduction (2018
Single $6,500 $12,000
Married filing Jointly $13,000 $24,000
Married filing Separately $6,500 $12,000
Head of household $9,350 $18,000

The people who this can potentially hurt are those that have itemized in the past. The following itemized deductions are changed:

  1. Itemized Deduction Changes

State income tax deduction: This deduction has been eliminated. In the past, you could deduct the amount of North Carolina state income tax that you paid on your federal return. For those with high incomes this can add up quickly since the state income tax rate is 5.49%.

Property tax deduction: The property tax deduction is capped at $10,000. For those individuals who own expensive homes, this deduction may be capped and you will not receive as big of a benefit as you once did.

  1. Personal Exemption Elimination:

Personal exemptions have also been eliminated. A personal exemption was an amount (in 2017 it was $4,050) that you could write off per person on the tax return. For example, a married couple with 3 kids would have 5 exemptions (1 for each parent and 1 for each child). People who are single filers or married filing jointly with no kids will be impacted less than those with large families.

  1. Child Tax Credit Doubling:

Child tax credit increasing. As mentioned earlier, families with numerous children will be hurt by the loss of the personal exemption. There is some saving grace through the doubling of the child tax credit. For each qualifying child the credit will be $2,000 (up from $1,000). Since this is a credit, this will reduce your tax bill dollar for dollar which gives a bigger benefit than a deduction. The phase-out amounts have also increase so as long as you make less than $200,000 (if single) or $400,000 (if married) then you will be able to use this credit.

Overall there are many changes that will affect your 2018 tax bill. Make sure to meet with a tax professional to get a more individualized preview of what this would look like for you.