The Top Tax Changes to Understand for The Year Ahead
The U.S. Tax Code is complicated today, there’s no easy way around it.
With the current presidential administration making major changes and updates to the way we go about organizing and collecting our taxes, it can be hard to keep up with what’s what regarding national, state, and municipal taxation policies today. Not to mention, the Internal Revenue Service (IRS) has put forth many changes for 2018 as well, lending itself to being a more difficult tax season than previous years.
If you’re worried about mastering the art of American taxes, here are some of the biggest changes to note for 2018:
1. Tax Bracket Alterations:
Most Americans only care about the tax changes that directly affect their paycheck. Inflation has left its impact on the 2018 tax brackets, with the income ranges for each bracket increasing by around 2% at this time. This means that salaried employees who didn’t receive raises will owe slightly less in federal 2018 income tax than they did in 2017.
2. Deduction Increases:
For those who don’t itemize their taxes and go with the standard deduction instead, they will be receiving a little extra during the upcoming year. According to the IRS, those filing as single in 2017 will receive a standard deduction of $6,350, while married couples will be receiving $12,700. For 2018, single filers are looking at $6,500 and married couples $13,000. If everything else holds constant for 2018, you will be paying a little bit less in federal income taxes – that’s a good thing!
3. Personal-Exemption Allowance:
For those who do itemize their taxes, they are also getting a little boost. Personal-exemption allowance is rising by $100 in 2018, to $4,150 from $4,050 in 2017. These exemptions are most common among wealthier taxpayers.
4. Bigger 401K Limits:
In 2018, investors will be able to put away $500 more per year into their employer-sponsored 401Ks. Instead of the $18,000 cap per year, they can now move up to $18,500 per year, also applicable to those over the age of 50, who can tack on the extra $500 to their $24,000 per year limit. It’s worth noting hat these contributions are made on a pre-tax basis, ensuring the more contributed, the less tax liability included.
5. IRA Phase-Out Limit Boosts:
For those with an individual retirement account (IRA), though they won’t be seeing contribution limits increasing, they will see their phase-out and exemption income limits adjust a little bit higher. In 2018, single filers or heads of households can earn up to $63,000, which is a jump of $1,000, with a phase-out in the $63,000 to $73,000 bracket. These people will also be able to earn up to $101,000 within the $101,000 to $121,000 phase-out bracket. IRA contributors, rejoice!
Additional changes include Roth IRA phase-out increases, alternative minimum tax exemption amount increases with inflation, Earned Income Tax Credit maximums increases, annual gift exclusion increases, and the list goes on.
Be sure to take note of these changes before filing your future taxes.