Tax Law Changes, the good, the bad and the ugly…

Let’s talk good news first:

  1. The tax rates are lower and most people should benefit from this
  2. For those that don’t itemize, you may benefit from the new standard deduction – please note that the personal exemption is no longer a deduction. Example – you are married filing joint, no kids and don’t itemize.  In 2017, you got $8,100 in exemptions and $12,700 standard deduction, a total of $20,800.  In 2018 you would have a straight $24,000 standard deduction
  3. For those higher wage earners with children, the income phase out for the child tax credit is substantially increased to $200,000 for single and $400,000 married filing jointly
  4. For other dependents, you won’t have the exemption BUT you get a credit of up to $500 per dependent, again with the higher income thresholds
  5. There will be incentives for business owners – self-employed, or pass thru entities like LLC’s and S Corps but we need to understand this better

Now the bad news:

  1. Fewer people will itemize. The higher standard deductions of $12,000 single, $18,000 head of household and $24,000 married filing jointly will eliminate many people from itemizing
  2. Fewer items to itemize and caps on certain deductions will further minimize the ability to itemize. This includes the cap on ALL taxes you pay (lines 5 thru 8 on 2017 Schedule A) is capped at $10,000.  So it you earn $100,000 and you paid in $4,950 in IL income tax plus your real estate taxes are $8,000, you no longer get $12,950 in deductions.  It is capped at $10,000.

In addition, you can no longer deduct items that appear on lines 21 thru 26 on your 2017 Schedule A.  This includes job related expenses – union dues, mileage, tolls, travel, education, home office, etc.    IT DOES NOT EFFECT GAMBLING LOSSES

  1. You can no longer deduct interest on home equity loans/lines IF it was not incurred for the purpose of buying, building or substantially improving the qualified residence.
  2. There is a limit on charitable contributions also but it is pretty lenient – cannot exceed 60% of your Adjusted Gross Income.
  3. There are still additional deduction increases for 65 or older and/or blind