Back in 2018, you may recall that there was a new tax law going into effect. There was news of people going from usually getting a tax refund to either not getting much of a refund or having to pay. This included me as I went from paying a little back to the government to paying 5 figures back to the government. Until I saw this video from Dave Ramsey, I didn’t know truly why.
I went from filing taxes with itemized deductions to filing the standard deduction.
The federal law also raised the standard deduction for single filers to $12,000 in 2018 from $6,350 for in 2017 (it went to $24,000 from $12,700 for married filing jointly) and limited certain itemized deductions for taxpayers.
It also did away with personal exemptions: a $4,050 deduction you once could claim for yourself and each dependent in your household.
Consider a New York couple with two children and $150,000 in income. They paid $20,000 in state and local taxes, and $14,000 in mortgage interest. Their federal tax bill would have been $16,500 in 2017 and $18,600 in 2018, according to Efthemes. Under the new law, however, they owe $2,100 more because they lost the SALT deduction and four personal exemptions. Those losses “outweighed the benefits” of lower income-tax rates and higher child tax credits, she says.
A single taxpayer with the identical numbers, but no dependents, however, would owe just $100 more in 2018 taxes. That person’s lower income-tax rate would largely compensate for the loss of the SALT deduction.
The biggest impact for me was the standard deduction nearly doubled and this affected many tax filers. So what can I do to accommodate this? Not much.
Deductions for charitable donations and home-office expenses are still allowed, and taxpayers can still deduct mortgage interest (up to a new limit on $750,000 of debt for primary home mortgages taken out after Dec. 14, 2017). But Congress eliminated many other breaks, including deductions for job-related moving expenses, home-equity loan interest (unless the loan is used for home improvement), unreimbursed work expenses (such as travel, parking, and meals), investment advisory fees, and job-search expenses. Congress also eliminated a deduction for tax-preparation fees, making it costlier to hire an accountant to figure it all out.
The recent tax laws benefited certain households. Unfortunately, the tax laws did not benefit my household. There isn’t much I can do with so many limitations. I’ll continue to work on the things my accountant told me to do that could help me with taxes. The only thing left is to start a business. Bottom line, be aware of all tax laws to help you prepare and make any adjustments. If you are interested in following my journey, email subscribe to get alerts of latest posts or follow me on Facebook.