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2018 Tax Exemptions and Deductions: What You Need to Know

By Dan Caplinger - Dec 8, 2017 at 6:32AM

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A lot could be changing for taxpayers in the coming year.

Now more than ever, tax laws are in flux. The final amount of valuable tax breaks like the personal exemption and the standard deduction that you'll be able to claim in 2018 will depend in large part on whether tax reform passes and which provisions end up in a final version of any legislation that makes it through Congress. With substantial differences between the House tax reform package and the version that the Senate approved, lawmakers will have to figure out how to come to agreement on a bill that can make it through both chambers successfully.

That uncertainty makes it impossible to provide a definitive list of what exemptions and deductions will be in place for 2018. However, you can get a good sense of what things would look like in 2018 without tax reform, and then get a sense of what impact the House and Senate proposals would have on those numbers.

Alarm clock behind piles of coins and refrigerator magnets spelling TAX.

Image source: Getty Images.

What 2018 key exemptions and deductions would be under current law

Even if tax reform weren't on the table, many tax provisions would change in 2018 simply because of annual inflation adjustments. In particular, the most important tax breaks, including the standard deduction and the personal exemption, typically change every year.

The standard deduction is slated to go up in 2018 as follows:

  • Single filers: $6,500, up $150
  • Head of household: $9,550, up $200
  • Joint filers: $13,000, up $300

Those who are over 65 or blind are entitled to an additional amount in their standard deductions. Single filers can get an additional $1,600 if they are either over 65 or blind, or $3,200 if both conditions apply. For married filers, the added amount is $1,300 per conditions, allowing for a maximum increase in the standard deduction of four times $1,300 or $5,200.

The personal exemption amount that you're allowed to claim for yourself and for any dependents listed on your tax return will rise by $100 to 2018. That will take the figure up to $4,150 per person.

The other exemption amount that plays into many people's tax planning is the income exemption for the alternative minimum tax. Under current law, the income exemption was slated to rise by $1,100 to $55,400 for single filers. Joint filers would get a $1,700 boost in 2018 to $86,200. Phase-out amounts would also rise slightly from 2017 levels.

How tax reform would change the standard deduction and personal exemptions

The tax reform packages proposed by both the House and the Senate would dramatically change the way that taxpayers calculate their taxes. Rather than having separate standard deductions and personal exemptions, the proposals would simply wrap both numbers into a larger standard deduction.

Under the House plan, the standard deduction for singles would be $12,200, while joint filers would get $24,400 as a standard deduction. The Senate bill has corresponding figures of $12,000 and $24,000.

You can see that whether this results in a larger or smaller total of deductions and exemptions depends on the size of the taxpayer's family. For single filers who only claim an exemption for themselves, the new amount would be higher than the total of $10,650 that would apply in 2018 under old law. Joint filers with a total of four exemptions would be substantially behind, with the new provisions taking away more than $5,000 in deductions compared to the total of $29,600 in standard deduction and personal exemptions under current law. In general, the fewer dependents you have, the better the reform package treats you.

What will happen with the AMT in the 2018?

Meanwhile, the fate of the alternative minimum tax for the coming year is even more uncertain. The House proposal would eliminate the AMT entirely, making it a moot point for taxpayers. The Senate chose instead to keep the AMT, but they increased the income exemptions below which no AMT applies.

If the Senate version passes, then the new income exemption amounts would be $70,300 for single taxpayers and $109,400 for joint filers. That would be about a 40% increase from current law, but it would still leave many taxpayers potentially exposed to the AMT in 2018 and beyond.

Is this your final answer?

Taxpayers can expect more definitive answers in the near future as lawmakers work toward reconciling their two different proposals into a single bill. With plans to pass tax reform before 2017 ends, Congress should soon be able to give taxpayers a more complete sense of what they can expect from key exemptions and deductions for 2018.

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