Editor’s note: This post is brought to you by INB’s tax services in conjunction with Dave Ramsey, a personal money-management expert and popular national radio personality. INB Senior Vice President Chris Parks, CPA, is the Dave Ramsey-endorsed local provider for tax services in the Springfield area. Schedule an appointment today with Chris by calling 217-679-1676.
It’s often said that taxes are one of the constants of life – but even the laws and processes regarding your taxes changes!
The 2018 tax reform bill is on the scene now, bringing new updates that range from tax rates to deductions. And at INB, we’re here to keep your head from spinning as you prepare this year’s tax filing.
Even though the tax reform bill — formally known as the “Tax Cuts and Jobs Act” — was introduced a year ago, it didn’t apply to the taxes you filed last year. But when you file in April, you’ll feel the difference.
The good news? Even though the tax reform bill brought some big changes, it made a lot of things simpler too.
We’re breaking down the details so you understand what’s changed and how those changes impact you for 2019…
Income Brackets and Marginal Tax Rates
First, one of the most talked about changes in the 2018 tax reform bill was the update to income tax brackets and marginal tax rates.
So what are marginal tax rates? Those are the percentages of your income that you pay in taxes. Your income is not taxed at one rate but at several different rates, depending on how much you make.
How do you know your tax rates? That’s what tax brackets are for; tax brackets are simply income ranges, and each tax bracket corresponds to a tax rate.
It’s fairly common for tax brackets to change to account for inflation each year. But the marginal tax rates only change when a new tax law is passed—which doesn’t happen often. This year, that brings good news: lower marginal tax rates means you can pocket more money from your paycheck!
To view these new changes, take a look at Dave Ramey’s 2017 and 2018 marginal tax rate tables here.
Not only that, but if you got married this year, you may have a lower tax rate. Your shift in tax brackets may also remove what used to be an unintentional tax penalty for married filers. (Under the 2017 tax law, some married filers were pushed into a higher income bracket when they combined their income with their spouse’s. Now, most of the new income brackets are simply doubled for joint filers, which means that unintentional marriage penalty is gone.)
Another important difference in the 2018 tax reform bill is that the standard deduction has almost doubled!
The standard deduction is an automatic reduction in what you owe in taxes. When you pay taxes, you have the option of taking the standard deduction or itemizing your deductions. (If you itemize, you calculate your deductions one by one – more tedious but worth it if your itemized deductions exceed the amount of the standard deduction.)
The 2018 tax reform bill got rid of the personal exemption, which is the amount a taxpayer used to be able to deduct from their taxable income for themselves and any dependents claimed on their tax return.
Check out Dave Ramsey’s website to see examples of this difference.
Differences for Homeowners
Mortgage deductions are a hot topic this year.
In 2017, if you itemized your deductions, the IRS allowed you to deduct the interest you paid on your primary residence and/or second home, as long as your original mortgage principal wasn’t more than $1 million.
In 2018, the maximum mortgage principal in the tax reform bill was lowered to $750,000. However, taxpayers with existing mortgages in between $1 million and $750,000 will be grandfathered into the old deduction.
Before this year, you were also allowed to deduct interest paid on home equity debt, up to $100,000. The tax reform bill removed that deduction starting this year.
For more 2018 tax changes, check out other deductions that are disappearing here or read about new tax reform laws for parents here.
Despite all of the tax reform changes, filing your taxes doesn’t have to feel complicated. If you’re looking for a trustworthy tax expert in your area, schedule an appointment with INB’s Chris Parks, CPA, by calling 217-679-1676.