How Will Tax Reform Affect My Refund Next Year?

Tax Reform Stocksy_txp99f5a1ba6pn100_Medium_1260279

We know that you work hard for your money and often a tax refund may be the biggest check you get all year, so we’re here to let you know how the new tax reform legislation may affect your tax refund next year.

The new tax law is the largest piece of tax reform legislation in 30 years and was signed into law on December 22, 2017. For most people, these tax changes impact tax year 2018 (the taxes you file in 2019) and not tax year 2017 returns. Overall, the changes associated with the new tax law may lower taxes for individuals and small businesses.

Some of the highlights for taxpayers include:

  • Lower individual tax rates
  • Increased standard deduction
  • Increased child tax credit
  • Elimination of dependent and personal exemptions
  • Elimination of some itemized deductions
  • $10,000 cap on the deduction for state income taxes, sales, and local taxes, and property taxes combined
  • 20% deduction for “pass-through” entities (sole proprietorship, partnership, S corp.)
  • Increased expense limits for capital assets

So just what will these changes mean for your 2018 tax refund? Here is a break down based on your individual tax situation.

A Family with Kids

Although there was an elimination of the dependent exemption deduction beginning for tax year 2018, families with kids may see a bigger tax refund next year since the child tax credit doubled and went from $1,000 to $2,000. In addition, the amount that is refundable grows from $1,100 to $1,400. The law also adds a new, non-refundable credit of $500 for dependents other than children. Finally, it raises the income threshold at which these benefits phase out from $110,000 for a married couple to $400,000. Tax credits are a direct reduction from the taxes you owe so they mean more than a deduction that reduces taxable income.

Claims the Standard Deduction

If you normally claim the standard deduction you may see less tax liability in 2018 since the new tax law nearly doubles the standard deduction amount. Single taxpayers will see their standard deductions jump from $6,350 for 2017 taxes to $12,000 for 2018 taxes (the ones you file in 2019). Married couples filing jointly will see an increase from $12,700 to $24,000. These increases mean that fewer people will itemize. Today, roughly 30% of taxpayers itemize. Under the new law, this percentage is expected to decrease.

Claims Itemized Deductions

If you claim itemized deductions you may see fewer tax deductions that lower your tax liability especially if you live in a state with high property taxes since the new law limits the amount of state and local property, income, and sales taxes that can be deducted to $10,000. In the past, these taxes have generally been fully tax deductible.

The law also caps the amount of mortgage indebtedness on new home purchases on which interest can be deducted at $750,000 down from $1,000,000 in current law.

If you itemize you will also see the elimination of some miscellaneous itemized deductions like unreimbursed employee expenses under the new law.

Self-Employed, S Corps, and Partnerships

If you are self-employed or have an S-Corp or partnership you may see lower tax liability which may increase your refund since the new law includes a 20% qualified business income deduction for incomes from certain type of “pass-through” entities and almost doubles the amount small businesses can expense when they purchase business equipment from the 2017 Section 179 amount of $510,000 to $1,000,000.

What do you need to do?

Because of the changes to the 2018 tax laws such as changes to itemized deductions, increased child tax credit to $2,000, the new dependent credit, and the eliminations of dependent and personal exemptions, you should file a new Form W-4 with your employer in response to the new tax law, if your personal situations changed, or if you started a new job.

TurboTax has you covered and has an updated W-4 calculator that you can use to easily figure out your withholding allowance so that you can update your W-4 with your employer. TurboTax Tax Caster can also help you estimate your tax liability for 2018.

Self-employed and small business owners may also wish to make adjustments to estimated taxes they pay. QuickBooks Self-Employed will help you easily figure out your estimated taxes.

TurboTax Has You Covered

TurboTax has you covered and will be up to date with the latest tax laws.


Comments (28) Leave your comment

  1. The standard deduction has been increased for me and my wife to 24000, but by eliminating the personal exemption of 8100, my tax liability is the same as last year. Don’t see where this increase in the standard deduction is beneficial to anyone.

  2. i read something about average refund of 2800. I usually get bigger refunds everyyear as I always put 0 dependent on W4 and I have 4 children and a mother as a dependent. Will I still be able to get my full refund no matter how big it is? or would there be a cap for this as well?

  3. Will we still have to pay the fine for not having health insurance for 2018? Filed in 2019? Also, my husband passed away in June, I know that I can still file married filing joint for this year. However, will the refund come in my name or still his? The bank we had our joint account at and where our refund was always automatic deposited made me take his name off of the account. Will I need to have a paper check sent to the house? And if so, how will I cash it with is name on it and him not being here to sign it?

    1. If the bank has your history and has his death certificate. You would sign his name and put deceased and sign your name as well

  4. You mentioned that being 65 and older allowed for the additonal 1250.00 deduction and implied it was for married couples. Why don’t single filers get this, or don’t they?

  5. TurboTaxLisa

    Will TurboTax release a “draft” version of its software before the end of 2018 to assist us in making last minute financial decisions.

  6. Is interest paid on a line of credit secured by my principle residence used to pay a divorce settlement deductible in 2018?

  7. Is it true that the new laws eliminate the home office deduction ? That’s a big loss for those who work out of their home as part of their employment.

  8. What will be my standard deduction in 2018, if my parents claim me on my taxes. My income for 2018 will be about $11,500

  9. Will charitable deductions, including cash and donations of goods, still be allowed when filing 2018 taxes? Thanks

  10. On the taxcaster do we just put in our SS and pensions under wages? Will all our SS be taxed? We each have a monthly state pension plan. Also, are any of the deductions that we wrote in deductible next year? What receipts do I need to keep? I thought medical was going away. What about Charitable?

    1. I will have a full year of retirement this year and will possibly be filing married single (not joint). What is the maximum income allowed before having to pay income tax (considering standard deductions)

    1. Hi Randy

      As a 1099 contractor you should be filing a Schedule C to report your income and expenses for the year. You will still be able to deduct expenses related to the business in 2018. Things like vehicle mileage and supplies are still valid deductions in this situation.

      Thank you

      TurboTax Derek

  11. On next year’s taxes, what about senior (65 and Older) standard deduction rates? Will it be doubled for married couples over 65?

    1. Hi,
      Yes married couples 65 and over will have standard deduction of $24,000 plus an additional amount of $1,250 for each of you if you are each 65 or older.
      Thank you,
      Lisa Greene-Lewis

  12. When my return is completed this year (2017), will I be able to forecast my next year’s (2018) income taxes if my income remains about the same under the new tax law changes? Will I also be able to print out a W-4 to give my employer to help insure about the same refund or a larger one?

  13. I have done my 2017 taxes with TurboTax. The refund was $1550.00. Today, I used Tax Caster, using all the numbers from my 2017 tax form. Tax Caster said my refund, for 2017, should be $3046.00.

    Any thoughts on the discrepancy?

    1. Hi Carl,
      TaxCaster is only to get an estimate as it does not ask all of the questions about your tax situation like the program does.
      Thank you,
      Lisa Greene-Lewis

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