By Barbara O’Neill, Ph.D., CFP®, Rutgers Cooperative Extension, email@example.com
In January 2019, OneOp Personal Finance team presented the Tax Cuts and Jobs Act (TCJA) of 2017 webinar in preparation for the 2018 income tax filing season. 2018 is the first calendar year where taxpayers will file their tax returns under the new TCJA rules. Below is a list of key TCJA features that were presented by Andrew Zumwalt, a tax expert from the University of Missouri Extension:
- An almost doubling of the standard deduction for single and married taxpayers so that only about 10% of taxpayers will benefit from itemizing.
- Tax rates are lower (than they were in 2017) through 2025. For example, the old 15% tax rate is now 12%.
- No more personal exemptions to decrease the amount of income on which income taxes are paid.
- Casualty loss deductions are limited to those incurred in a natural disaster declared by the U.S. President.
- The new Qualified Business Income Deduction: 20% of pass-through income for LLCs, sole proprietorships, and partnerships.
- $10,000 cap on SALT deductions (itemized deductions for state income tax and local property tax).
- Moving expenses are no longer deductible except for service members with a permanent change of station.
- The child tax credit is now $2,000 and $1,400 is refundable (i.e., where taxpayers get money back even if they have no tax liability).
- There is a $500 non-refundable credit for other dependents (e.g., an 18-year old child) to partially make up for the loss of tax exemptions for these dependents.
- For divorce decrees executed as of 1/1/19, alimony is no longer deductible by the payor or taxable to the recipient spouse.
- Every tax filer gets a standard deduction so there are now fewer “issues” with double-claiming dependents.
- Starting in 2019, there is no longer a penalty (called a shared responsibility payment by the IRS) due if individuals do not have health insurance.
- Different increments of income are taxed at different marginal tax rates. A marginal tax rate is the rate paid on your last dollar of income. The seven marginal tax rates for 2018 through 2025 range from 10% to 37%.
- If Congress does nothing to amend or extend the TCJA, tax rules go back to the way that they were in 2017.
The webinar also discussed the format of the newly reformatted 1040 tax form for 2018:
- It is like the size of a large postcard but filers may also have to use several other supplemental forms called Schedule 1 to Schedule 6 in addition to previous schedules such as Schedules A, B, C, D, E, F, and SE.
- There are no longer any 1040EZ and 1040A forms so everyone will use the 1040. For those with simple tax returns, the new 1040 form will be relatively easy to complete.
- For those with more complex finances, the form will look different, but may not be any simpler than before.
- The front page has written information such as name, address, Social Security number, number of dependents, and filing status. The back page has numbers such as income, deductions, taxes, and tax credits.
- There is a new worksheet to calculate the 20% deduction for qualified business income from pass through entities. Taxpayers do not actually file this form, but should keep it with their tax records in case of an audit.
- The new 1040 form somewhat resembles the old 1040 tax form. Several schedules have lines that say “Reserved” which were put there in case Congress made any more changes.
The due date for 2018 tax returns is 4/15/19 unless you live in Maine or Massachusetts (their due date is 4/17/19). You can automatically extend filing a return to 10/15/19 by sending Form 4868 to the IRS by 4/15/19. All tax forms and schedules are available for downloading at www.irs.gov if you plan to file a paper return.
For additional information about the TCJA and filing 2018 income tax returns, review the archived OneOp webinar or listen to the podcast episode on this topic with Dr. O’Neill and Molly Herndon.