When it comes to filing taxes, it can be confusing — especially if you freelance and write things off. Even if you don’t, there are still
ways tax laws have changed this year and things you should keep in mind when doing your 2018 taxes. While your friend may file their taxes one way, it doesn’t mean their way will work for you. Of course, there are several ways to file — doing them yourself, using a program, such as one by H&R Block or TurboTax, or going to an accountant. But, no matter what you choose, it’s important to be aware of all the ways filing will be different this time around — and doing so can literally save you money.
The new tax law was the biggest overhaul of the tax code in 30 years, so there are a lot of changes,” Andrea Coombes, tax specialist for NerdWallet, tells Bustle. “Tax rates are lower for almost everyone, which is great news, but there are so many changes that it’s hard to know if any one individual’s tax bill will go up or down.” That said, below, Coombes and other tax experts explain how some of the main tax laws are different this year than in the past.
There Are Seven Different Tax Brackets
Ash Exantus, director of financial education and financial empowerment coach at
BankMobile, tells Bustle that a primary thing to be aware of this tax year is that there are seven different tax brackets that you could fall into. “The rates have changed, so take some time to review your tax bracket and filing status,” he says. “This will determine how much of your income is taxable.”
The Standard Deduction Is Almost Double What It Was Before
prepare to do your taxes, take a close look at your itemized versus standard deduction, Christina Taylor, senior manager of tax operations at Credit Karma Tax, tells Bustle. “People who normally itemize may end up taking the standard deduction this year due to the Tax Cuts and Jobs Act, which nearly doubles the standard amount,” she says. “It went from $6,350 to $12,000 for a single filer.” She says that many filers choose to take the standard deduction for simplicity, but if you’ve historically claimed an itemized deduction, she recommends looking at how the newly increased standard deduction may impact your refund.
In fact, TurboTax estimates that nearly 90 percent of taxpayers will now take the higher standard deduction, up from about 70 percent in previous years, Claudell Bradby,
TurboTax Live expert, tells Bustle. She says that if you need some help choosing which deduction to use, you can use TurboTax’s Standard vs. Itemized Deduction tool for help.
There Are No More Personal Exemptions
Another tax change is the fact that you can no longer claim a personal exemption; you used to be able to for yourself, as well as one for each dependent. So now, you may get less of a refund. “Each personal exemption was worth just over $4,000 per person, so you would reduce your taxable income by that amount,” Coombes says. “That tax benefit is no longer available, which may hit big families hard at tax time.”
The Child Tax Credit Is Worth Twice As Much
Coombes says the
Child Tax Credit (CTC) is now worth twice as much, up to $2,000, so parents should definitely see if they’re eligible for that. “ A tax credit reduces your tax bill dollar for dollar,” she says.
Exantus points out that, while this is not a refund, it may offset what you owe and could result in a refund if you have enough credit.
There Is Now A $500 Credit For Non-Child Dependents
Bradby says there is now a $500 credit available for non-child dependents, which could include elderly parents or children over the age of 17. “Additionally, the
Earned Income Tax Credit (EIC) — for families with at least three children — is as much as $6,431,” she says.
There’s A New Tax Benefit For People Who Are Self-Employed
Bradby says that one of the biggest changes for the self-employed is a new tax benefit called the
Qualified Business Income Deduction. “This may allow you to deduct up to 20 percent of your qualified business income,” she says. “The deduction is available to eligible taxpayers whose 2018 taxable incomes fall below $315,000 for joint returns and $157,500 for other taxpayers.”
She says that if your income is above the $157,500/$315,000 taxable income thresholds, your 20 percent QBI deduction may be limited if your business is considered a service-type business falling into a category such as health, law, or accounting. “Note that the Qualified Business Income Deduction is subject to a few limitations based on the type of income, type of trade or business you are in, and the amount of net income you earn,” Bradby says.
Most People Can No Longer Deduct Moving Expenses
While workers moving for a new job were able to deduct related expenses on their tax returns for the 2017 tax year, that is no longer the case, Bradby says. “Everyone, except
members of the armed forces, has lost that benefit,” she says. “However, one way taxpayers may potentially be able to offset some expenses is by asking your employer to reimburse you for your moving expenses if they don’t already.” She says that, if not, you can deduct mortgage interest and property taxes when you purchase your new home.
Your Property Tax Deduction May Be Capped
Homeowners will see that their
property tax deduction is now capped at $10,000, and that cap includes state income taxes, too, Coombes says. “But that only affects homeowners who itemize their deductions, rather than claiming the standard deduction,” she says. “This year, they’ll have to see if itemizing still makes sense.”
There Is No Longer A Penalty For Not Having Health Insurance
Remember how, previously, you had to
pay a fee if you didn’t have health insurance? Well, that’s no longer the case. “Now, there are no additional tax penalties for those who do not have health insurance,” Exantus says.
All in all, though the new tax laws may seem overwhelming, some of them may end up benefiting you more than you realize. Of course, it’s best to review
the IRS website to read about them more in-depth, as well as consultant a tax professional.