Tax Reform 101: 5 Things To Do Now

Tax Reform Tax Reform 101: 5 Things To Do Now

Even if you didn’t owe money this past tax season, it’s more important than ever to get ready for the upcoming tax season now. With so many changes under the new tax reform law, we wanted to break down five big changes and the moves you can make now to help you save money when you file your 2019 taxes (the ones you file in 2020).

Lower tax rates, more money. One of the biggest changes under the new tax law that may impact how much you need to have withheld from your paycheck is the reduced tax rates. Tax rates were reduced about 1 – 4% for the majority of taxpayers so you may be seeing more money in your paycheck. Although the IRS adjusted the withholding tables that employers use to produce the correct amount of tax withholding for people with simpler tax situations, for instance, those who only take the standard deduction, the withholding tables don’t reflect some of the other changes that impact more involved tax returns like the reduction of some itemized deductions. To make sure you give your employer the right W-4 withholding allowances to boost your tax refund — or your take-home pay you can use the updated TurboTax W-4 calculator.

Elimination of personal and dependent exemptions. Under tax reform, the personal and dependent exemption was eliminated. If you are married and have a few kids, the elimination of your personal and dependent exemptions can mean a reduction in the number of write-offs you once had.

Increase in the Child Tax Credit. Although you’re no longer able to take the dependent deduction, under tax reform, the Child Tax Credit increased from $1,000 to $2,000 per child. The law also adds a new, non-refundable credit of $500 called the Other Dependent Credit (OCD) 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, which means more people will be eligible for the tax credit. Because the Child Tax Credit is for kids under 17, if your not so little one celebrated their seventeenth birthday this year, you may see a change in your taxes, since you can no longer take the Child Tax Credit for your 17-year-old.  You can, however, take advantage of the new Other Dependent Credit of $500 if your child is 17 or older.

Changes if you’re a homeowner. If you are a homeowner or are considering buying your dream home, some of the changes in the tax law are very important for you. As an existing homeowner, you may see fewer tax deductions that lower the taxes you owe especially if you live in a state with high property taxes — since the law limits the amount of state and local property and state income or sales taxes that can be deducted to $10,000. In the past, these taxes have generally been fully tax-deductible. Due to the cap on these tax deductions, you may now also have to take the standard deduction on your taxes instead of taking itemized deductions since the standard deduction has almost doubled. Don’t worry about knowing if you should take the standard deduction or itemize your tax deductions at tax time. TurboTax will ask you simple questions about you and give you the option (standard deduction or itemized) that you’re eligible for based on your entries.

If you are considering purchasing a new home this year, one thing to keep in mind is 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 for homes purchased prior to December 15, 2017. If you are trying to make a decision between purchasing in a high property state like California or a state with lower property prices, knowing about these changes could help you with your decision.

Elimination of tax deductions. Tax reform eliminated several popular tax breaks like miscellaneous itemized deductions. This includes deductions such as job search expenses, unreimbursed work expenses, investment expenses and tax preparation fees, exceeding 2% of adjusted gross income as well as the elimination of moving expenses unless you are active-duty military.

What Can You Do Now?

Adjust your withholding allowances. One of the best things you can do is to use the TurboTax updated W-4 calculator to boost your tax refund — or your take-home pay.

See where you stand. You can also use TurboTax TaxCaster to see how the new tax law impacts you. TurboTax TaxCaster will give you a side by side comparison of how tax reform impacts you based on your specific situation.

Reduce your taxable income. You can decrease your taxable income by making smart money moves throughout the year like investing in your 401K or IRA. Also, don’t forget expenses like paying student loan interest can be tax-deductible and will decrease your taxable income at tax time.

Don’t worry about knowing the tax laws. TurboTax will ask you simple questions about you and give you the tax deductions and credits you’re eligible for based on your answers.  If you have tax questions, you can connect live via one-way video to a TurboTax Live CPA or Enrolled Agent with an average 15 years experience to get your tax questions answered at tax-time. TurboTax Live CPAs and Enrolled Agents are available in English and Spanish and can also review, sign, and file your tax return.


Comments (102) Leave your comment

  1. I am US citizen and live in US. I receive income from interest from a Canadian Bank and Pension from Canadian Government. Will the new tax code change this?

  2. I recited this past June, I have a rollover IRA, if I bought and sold stocks in it in the past few months and made money with some and lost with some, as long as i do not take any money out of the IRA, is it taxable at year end or only at the point when i start to draw from it.

  3. Many major credit card companies provide money back for certain types of purchases, or so called “rewards” that are credited to your account. My question is: Are these money back rewards considered “additional income” by the government. In my opinion, it’s just a return of our money that we paid out for our purchases, and shouldn’t be considered taxable. I would appreciate the IRS’s view on this matter. Thank you.

  4. I live in Canada. Your updates are for US tax law changes and are irrelevent to me, If you want to send me updates and tax tips please make them relevant to Canadian tax law, otherwise don’t bother.

  5. What’s the status re:Alimony? I heard the person receiving it doesn’t have to claim it as income on taxes for 2018 where they have in the past. Is this true?

  6. I’m a home care registered nurse. I was able to deduct my travel expenses like gas, also medical supplies that I buy, training etc in itemized deductions, under schedule C. Am I going to lose those deductions?

  7. After thoroughly reading thru these new tax changes it appears a slight of hand or shell game has taken place with this new tax plan. On the right hand it looks like the $24,000.00 income before taxes kick in appears to be a good deal, while on the left hand the deductions and credits eliminated will start to eat away at the value of the right hand. I fear one could run into situations where you would personally end up paying more at tax time with less being taken out of your paycheck, while corporations reap the reward of their windfall 21% tax rate forever.

  8. I have a kid who’s in college and is already 20 but I’m the one who’s paying for his tuition, is there a way I can use it to get a refund?

  9. I have an unrelated question but I do use Turbo I will ask. I am a foster parent and I am driving weekly around 170 miles round trip to take the children to see their bio parents. I am told that I can deduct this mileage but where would I report that on my form? The per diem is non taxable so it doesn’t count as a “job” so how would I claim mileage?

  10. I am single with two kids 14 and 15 and make under 12,000.00 and have 10 dollars a week taken from my check at 11.50 and hour average 30 hrs a wk what will I get back?

  11. Is there a phase out for 401k or IRA contribution? If so and you had contributued to traditional IRA but couldnt take the income deduction, is your IRA considered as a roth now? How do you keep track or notify your IRA service provider?

  12. How are medical expenses affected with the new tax law? My husband has had 2 surgeries and been disabled from working this year.

  13. Every year I am forced to pay for the question of do you own a farm /other land and every year the answer is no but I am charged up front. How do I get read of that charge. I just want to pay a regular fee for a regular income tax yearly. Please tell me what to do. Thank you.

  14. I am a retired pastor. In previous years I have been allowed to deduct my housing expenses from my taxable income. Does the new tax plan impact this deduction?

  15. I filed my 2016 taxes with turbo tax and the IRS has no tax file from 2016. Where is my tax return? Maybe it didnt get signed or submitted. Can you look into it please?

  16. I just started hosting air Bnb guests. What expenses may I be able to deduct. What expenses should I be keeping track of

  17. I would like to know more about how to report AirBNB income, particularly if a second BNB unit is added this year, increasing the capital expenses and square footage calculations. It appears that AirBNB issues only one statement of earnings – with the total of both units reported combined as one larger unit.

  18. I have a dependent son, now age 26 in 2018, who has Asperger’s Syndrome, a form of autism. He has never worked or attended higher education. He is totally dependent upon myself, his mother whom he lives with, and his father, as we have been divorced for 14 years, for his health insurance. His primary care physician has signed disability papers to extend his health insurance coverage. How can I extend dependent claim on him for taxes? What forms are required by IRS?

  19. Do you have any tips to reduce taxes for people who are already retired and can no longer contribute to an IRA or 401K?

  20. What was the final version of deductions for charity? I usually hold my donations until late in December to use these to insure I have enough to use the itemized vs. standard deduction. I will continue to donate either way only the amounts will vary.

  21. Please make completing K1 (Form 1065) to Form 4797 easier The Ki form in my case fromMagellan Midstream Partners is not exactly the easiest form to understand

  22. My husband has been sick for 9 years..many of these years we reached not only our deductible, but also our out of pocket maximum..this year he has already had 3 surgeries in one month he will have another. Hes been in hospital and long term care for 3 months. Am I going to be able to claim this?

  23. If a portion of my IRA RMD is paid directly to my church, will I : 1. Avoid the tax obligation on the amount, and 2. Still count the transfer as a tax deduction, and 3. If 1 and 2 apply will the 2018 TurboTax include the calculations to avoid the RMD tax while making the deduction?

  24. I and my wife are over age 65. Do retired taxpayers over 65 years of age still get the extra tax credit (deduction) as in Line 39a of the old Form 1040? Or, will we now get only the double exemption (deduction) like every working taxpayer under 65 gets when receiving a full-time paycheck? I would like to know your answer by email if retirees over the age 65 have been dropped through the crack intentionally and are now considered to be full-time, “working” taxpayers. Thanks.

  25. I appreciate all the information that is provided by TurboTax. I have been using this software and preparing my family’s returns since 2000. I stop allowing others to prepare our returns because I found many errors and it put fear in me that one day we would be audited. If I am going to be audited, it will be because the information I report and software I use to prepare our returns. So far, we have been audited for things like alimony payments, investment income errors, and the such. We were able to discuss the issues with the IRS, TurboTax customer care, and a CPA to ensure we provide all the information to avoid adverse actions due to these errors. I would never use another program. I read all the emails and information TurboTax provides to stay informed on the new tax law changes. I read all the up to date tax laws on to keep myself abreast of all changes as well. I have taken a course in tax preparation to ensure I understand how to use the software and answer the questions to give my family and I the most deductions possible.
    Lisa having this blog will allow people like me to see questions other tax preparers might be asking that are not available on the different websites I explore to get a better understanding of many of the questions that are asked on TurboTax. This is super cool.

    My spouse and I are both receiving pension benefits, social security and our daughter who is just 14 receives a stipend; if you want to call it that as a child in care from her father. In 2017, I filed our return because my husband had work income. Since moving to GA in 2017, he no longer worked and we still have the listed income above. We own our home in GA. We pay state and Federal taxes from our pension benefits until just recently due to tax reform (is my belief). Should I use the TurboTax TaxCaster to see how this has affected us and help me to determine if I should file a 2018? Please advise

    Sorry for the length 🙂 LOL

  26. Are any of the gross income adjustments entered in lines 24 through 34 of the Form 1040 being eliminated or revised for the 2018 tax year? I ask because I use almost all of these adjustments to reduce my AGI. If there are any changes I would like to plan ahead and not be surprised in 2019 when I use Turbo Tax. Thanks

  27. If I itemized I’ll be losing 4050 exemption allowance the standard deduction is no good for me I may have to pay more than before ?

    1. This is true based on my calculations I will Pay approximately $200.00 more. I am single and have an RMD that increases my net income.

    2. Loosing the $4000 personal exemption hurts. If you itemize and evrything remains the same as last year you will have $8000 more in taxable income.

  28. I am a retired pastor. In previous years I have been allowed to deduct my housing expenses from my taxable income. Does the new tax plan impact this deduction?

    1. Have discovered tha under the 2018 Tax Code my Required Minimum Distribution from IRA can be given to Non-profit and not be taxed. However this is only for IRA — CANNOT do this with 403b! Interesting as both are tax deferred.

    2. I’m also clergy, not a tax accountant, so check this answer, but I believe it is correct: (1) You need a resolution from your denomination or salary paying entity declaring that up to 100% of church-funded pension may be counted as housing allowance. (2) If so, you can deduct from income an amount equal to but not exceeding your actual housing expenses. (3) This deduction has been in the process of litigation as a violation of separation of church and state, and it may go away at some time. But it hasn’t, yet.

  29. Does the new tax code give a penalty to married couples filing jointly who divorce (splitting assets) in 2019 vs 2018?

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