Tax Changes 2018
It seems like we've been talking and thinking about the new Tax Plan for an eternity. I even hesitate to call it "new" anymore! Nonetheless, we've spent the last several weeks diving in deep and learning all that is in store for us, our clients, and our collective taxes going forward.
“The more things change, the more they stay the same”
First of all... wait until you see the new forms! Have you previously filed a Form 1040-EZ or 1040-A? Not anymore… Those forms no longer exist. Everyone will file Form 1040 from now on.
Heard the rumors that the tax return will be able to fit on a postcard? Done. Kind of. Each page is slightly larger than the average-size postcard but it may take several postcards to make a complete return. Each major section of the old Form 1040 has been separated onto its own “postcard”. Taxpayer general information, dependent information, and signature fields make up page 1, income makes up page 2, adjustments to income are on page 3, and so on.
Here are some of the major changes:
Standard deductions: essentially doubled for every filing status
Personal exemptions: formerly $4,050 for each person claimed on the return. These are reduced to $0.
Schedule A: itemized deduction for state and local taxes (including income and property taxes) will be limited to $10,000.
Unreimbursed Employee Expenses: Gone. Sadly. This was always a hot topic in IRS audits. I'm sure they'll find other ways to stay busy.
Child Tax Credit: doubled to $2,000 per child under 17 and expanded to include more taxpayers through an increase in the income thresholds.
Family Tax Credit: new $500 tax credit for each dependent that doesn't qualify for the Child Tax Credit (i.e. 17 years old and up).
Tax rates: reduced overall for most taxpayers.
Alternative Minimum Tax: eliminated for most taxpayers that previously fell into this trap
If we prepared your 2017 tax return, we proactively projected how you would fare under the 2018 tax plan. If there seemed to be an adverse effect, you’d find a note in the cover letter to the tax return.
All I can say is "yikes". Vermont has totally revamped the way they calculate taxable income due to the fact that they'd lose too much tax revenue by keeping the old system. Tax rates have not been increased - in fact, there is a small decrease in the rates - but some notable deductions will be missing, such as medical expenses and charitable contributions. Vermont makes up for this by offering a charitable contribution tax credit of 5% up to $20,000 in donations. But, for those lucky enough to itemize deductions on the federal side, you'll be out those deductions on the Vermont side.
I'm sure many other states have made similar changes. We just don't have the space in this article to go through all of them. Rest assured, if you file in another state, we are on top of all the changes that affect you.