There’s a new tax plan in place and lots of things are changing. Personal exemptions are gone, many itemized deductions have been eliminated and the tax brackets were shifted. These changes will be in effect until at least 2025. Here’s what you need to know about your taxes going forward.
Parents will be happy to hear that you’re no longer limited to using 529 savings for college expenses. Under the new rules, you can also use the funds for private K-12 schooling. The withdrawal limit is $10,000 a year per student for education expenses. Not every state has adopted the law yet so double-check the rules before heading to the bank. Otherwise, you may be penalized.
ACA individual mandate
Before the reform, everyone was required to have health coverage or face penalties. Starting January 1, 2019, the uninsured will no longer have to pay up. Think long and hard before canceling your coverage though. If you get rid of your insurance and something goes wrong, a trip to hospital may cost you thousands more than if you had coverage.
Previously, the person paying alimony was allowed to deduct the payments from their income. Meanwhile, those on the receiving end were required to report the payments as income. After January 1, 2019 that all goes out the window. Alimony no longer needs to be reported by either party.
Casualty or theft losses
The old law allowed you to deduct uninsured losses that were greater than 10 percent of your adjusted gross income. However, your losses had to be due to flood, fire, earthquake, theft or anything else along those lines. Now, you’re limited to just federally declared disasters.
Child Tax Credit
The Child Tax Credit has been doubled from $1,000 to $2,000 per qualifying child under 17 years old. Taxpayers can receive up to $1,400 as a refund. If your child is above the age limit or you take care of your parents, you may qualify for a $500 nonrefundable credit.
Medical and dental expenses
The tax reform still allows you to deduct medical expenses above a certain threshold. They’ve even made it easier for you to hit the mark. The minimum was lowered from 10% to 7.5% of your adjusted gross income.
Previously, taxpayers were able to deduct a variety of expenses as long as the total exceeded 2% of their adjusted gross income. The new bill eliminates deductions for tax preparation, work-related expenses and investment fees. Moving-related deductions have also been eliminated for most people. Military members are the only ones still allowed claim their moving expenses.
New homeowners can only claim the interest on mortgages up to $750,000. If you owned or refinanced your home before December 15, 2017, the old mortgage cap of $1 million still applies.
Previously, all pass-through business income was taxed at the owners personal income tax rate. Now, business owners can deduct up to 20 percent of their income from a partnership, S corporation or sole proprietorship before the tax rates are applied. However, professional service providers such as lawyers, doctors and consultants are excluded.
Goodbye, so long, farewell. Personal exemptions have been eliminated.
Profits from selling your home
Homeowners can still exclude up to $250,000 of profits from the sale of their primary residence. However, you must have lived there for at least two of the last five years before the place was sold.
The standard deduction is rising for everyone across the board.
State and local tax deduction
Taxpayers can only deduct up to $10,000 in combined state and local income, sales and property taxes. In the past, there was no dollar limit.
The new tax plan stuck to using seven tax brackets but lowered most of the rates.