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10 tax changes you need to know for 2018

  • A slew of updates from the IRS and major tax reform passed by Congress could significantly alter your situation for the 2018 tax year.
  • The IRS unveils its changes each year, including cost-of-living adjustments for retirement savings and inflation changes for certain tax provisions..
  • Those updates, coupled with new rules passed by Congress through the Tax Cuts and Jobs Act, could result in a big difference in how much you owe.
  • Here are some of the most prominent changes that could affect you.

Standard deductions

  • Those who are married and filing jointly will have an increased standard deduction of $24,000, up from the $13,000 it would have been under previous law.
  • Those who are married and filing jointly will have an increased standard deduction of $24,000, up from the $13,000 it would have been under previous law. Single taxpayers and those who are married and file separately now have a $12,000 standard deduction, up from the $6,500 it would have been for this year prior to the reform.
  • For heads of households, the deduction will be $18,000, up from $9,550.

Personal exemption

  • The personal exemption has been eliminated with the tax reform bill.

Top income tax rate

  • A new 37 percent top rate will affect individuals with incomes of $500,000 and higher. The top rate kicks in for married taxpayers who file jointly at $600,000 and up. The new tax law also includes changes to other tax brackets.

Estate tax

  • The estate exemption doubles to $11.2 million per individual and $22.4 million per couple in 2018..

Child tax credit

  • The child tax credit has been raised to $2,000 per qualifying child, those who are under 17, up from $1,000. A $500 credit is available for dependents who do not get the $2,000 credit.

Mortgage interest

  • The deduction for interest is capped at $750,000 for mortgage loan balances taken out after Dec. 15 of last year. The limit is still $1 million for mortgages that were established prior to Dec. 15, 2017.

State and local taxes

  • The itemized deduction is limited to $10,000 for both income and property taxes paid during the year.

Contribution limits for retirement savings

  • Employees who participate in certain retirement plans ‒ 401(k), 403(b) and most 457 plans, and the Thrift Savings Plan – can now contribute as much as $18,500 this year, a $500 increase from the $18,000 limit for 2017.

Savings in IRAs

  • Savers who contribute to individual retirement accounts will have higher income ranges following cost-of-living adjustments. Note that the deduction phases out for individuals and their spouses who are covered by workplace retirement plans.
  • For single taxpayers, the limit will be $63,000 to $73,000..
  • For married couples, the phaseout range will vary depending on whether the IRA contributor is covered by a workplace retirement plan or not. When the spouse who is investing has access to an employer plan, the range is $101,000 to $121,000. For individuals who don't have a retirement plan but are married to someone who does, the phaseout has been raised to $189,000 to $199,000.
  • The phaseout was not adjusted for married individuals who file a separate return and who are covered by a workplace retirement plan. That range is $0 to $10,000..

Contributions to Roth IRAs

  • For individuals who are single or the heads of their households, the income phaseout has been raised to $120,000 to $135,000. For married couples who file jointly, the range climbs to $189,000 to $199,000.
  • The phaseout was not adjusted for married individuals who file a separate return. That is $0 to $10,000.