Have you filed your 2018 taxes yet? The deadline is April 15, 2019, so it's time to get started if you haven't already filed to the Internal Revenue Service (IRS).
When you do go to file your taxes, you may find your tax return is substantially different from years past, even if you haven't had any big lifestyle or income changes. This is thanks to recent tax reform, also called the Tax Cuts and Jobs Act. Understanding the new laws will prepare you for what your your tax return will look like this year, so you can avoid being disappointed by the amount you get back, if it's less than usual.
Here are three of the big differences you can expect to see on your return for your 2018 taxes compared to the years before.
1. You won't be using the same 1040 form
In tax years past, you had a choice of 1040 forms to file: the standard 1040 form, the 1040EZ, or the 1040A. Now, there's just one 1040 form. This new form is slightly more complicated than the old 1040EZ, but it's simpler than the old standard 1040 or 1040A.
The new streamlined form is two short pages to fill out, an attempt by lawmakers to fulfill a promise that tax reform would allow you to file your tax return on a postcard. It only asks for basic information about your dependents, income, credits, deductions, and whether you're claiming the standard deduction or itemizing.
On the surface, this form seems easier, but if you're claiming certain credits or deductions or you have additional income or adjustments to income, you'll need to include additional Schedules (the IRS term for forms). Still, it's nice that taxpayers won't have to navigate three different forms and figure out which is best for them.
2. You may decide to claim the standard deduction -- even if you usually itemize
If you've always itemized in the past, in order to claim deductions for things like mortgage interest, state and local property taxes, or charitable donations, don't assume you should itemize this year.
Tax reform nearly doubled the standard deduction, which is now $12,000 for single filers or married filing separately (up $5,650 from 2017); $18,000 for head-of-household filers (up $8,650 from 2017); and $24,000 if you file as married filing jointly (up $11,300).
It only makes sense to itemize if the specific deductions you're claiming exceed the new higher standard deduction for your filing status. As a result of the standard deduction boost, the percentage of tax filers who itemize is expected to fall from around 30% of filers to around 10% of tax filers.
Without itemizing, doing your taxes is easier because you won't have to document all your different deductions or worry about keeping receipts for charitable donations or medical expenses.
Of course, the tradeoff to claiming the standard deduction, is that you lose the opportunity to claim certain deductions like for expenses you're used to writing off. But any loss in deductions comes out in the wash, offset by the higher standard deduction which reduces your taxable income by the same amount or more.
3. You can't claim personal exemptions any more
In prior years, almost every tax filer was able to claim personal exemptions for themselves and for their dependents. For the tax year 2017, each personal exemption reduced taxable income by $4,050. And, in 2016 -- the most recent year of available data -- an estimated 298 million tax returns claimed personal exemptions, resulting in a reduction of almost $1.15 billion in income.
Tax reform eliminated personal exemptions entirely. This means you can no longer claim any exemptions, no matter how many dependents you have.
Unfortunately, if the value of your personal exemptions exceeds the amount by which your standard deduction increased, your taxable income might be higher this year than it was in 2017.
For instance: For a married couple, claiming four exemptions would have reduced their taxable income by $16,200, but instead, their standard deduction has only been increased by $11,300. So, their taxable income is $4,900 higher, compared to 2017 -- assuming all else remained the same.
This doesn't mean your taxes will necessarily be higher, since there are other changes that play into the amount of your tax bill. There have been changes to tax brackets and tax rates, as well as changes to the Earned Income Tax Credit (EITC) or child tax credit, and there's a new dependent tax credit. But, if you claimed lots of personal exemptions in the past, don't be surprised to see more taxable income listed on your return this year.
Now you're prepared for big tax changes
Informing yourself of changes means you won't suffer a shock when you file your taxes. And when you see your tax return looks quite different, you'll understand why.
Knowing about how tax reform changed the laws that impact your return will help you make a fully informed choice about whether to itemize this year or claim the standard deduction, so you won't pay the IRS more than you need for the 2018 tax year.