There are some big changes in the standard deduction and exemptions for 2018. We have all the numbers here and how the change will affect tax payers.
Most taxpayers can choose between itemizing tax deductions and taking the standard deduction. Itemizing, which requires accurate record-keeping, allows you to take deductions for specific expenditures from the tax year. The standard tax deduction is a fixed amount. Either way, your deductions reduce the amount of your taxable income. So they reduce the amount of overall taxes you owe.
Generally, if you can show that you’ve had more deductible expenses than the amount of the default standard deduction, it’s better to itemize. This way, you reduce your taxable income by more. So you’ll pay less in taxes.
However, if you don’t have enough itemized deductions, taking the standardized deduction works out best.
In 2013, only about 30% of U.S. households itemized their deductions in 2013, the most recent year for which data is available. With 2018’s increased standard deduction amount, there’s a good chance that this number will go down even more. With a higher standard deduction, it will be more difficult for taxpayers to itemize enough to cross that threshold.
IRS publication 501 outlines each year’s deduction amounts. There are some cases where you can make adjustments to the standard deduction. For example, if you are 65 or older, or if you are blind, you get a higher standard deduction.
Taxpayers used to also be able to take a personal exemption of around $3,000, depending on the tax year. This provision has been repealed for 2018, so this is no longer available.
What Tax Reform Means for Deductions
The recent tax reform bill has significantly increased the standard deduction. It has also decreased the number of itemized deductions that are allowed. These factors combined mean more taxpayers will likely take the new, higher standard deduction.
Here’s a historical overview of what the standard deduction has been since 2010:
|Married filing jointly||$24,000||$12,700||$12,600||$12,600||$12,400||$12,200||$11,900||$11,600||$11,400|
|Married filing separately||$12,000||$6,350||$6,300||$6,300||$6,200||$6,100||$5,950||$5,800||$5,700|
|Head of household||$18,000||$9,350||$9,300||$9,250||$9,100||$8,950||$8,700||$8,500||$8.400|
As you can see, the standard deduction is now much higher. Another major increase came with the child tax credit. Now, taxpayers can deduct $2,000 per qualifying child, with a maximum refundable amount of $1,400. This tax credit starts to phase out for married taxpayers filing jointly at $400,000 in income and at $200,000 in income for all other filers.
What Does it Mean for You?
Of course, the main question for most tax filers is, “How does this affect me?” Well, it really depends on a huge combination of factors. Check out this article for an in-depth overview of the major changes the bill introduced. But here are a few bottom-line takeaways to consider:
- You’re more likely to take the standard deduction. The higher standard deduction alone will be enough to push many taxpayers into taking it rather than itemizing. But taxpayers who used to itemize due to hefty mortgage interest, lots of charitable contributions, or high state and local income and property taxes may find those more-limited deductions aren’t enough to push them over the threshold now.
- Taxes may be simpler in some ways but more complex in others. Taking the standard deduction is, indeed, simpler than itemizing. But it may take some time to hash out all the practical implications of this tax law. So be prepared for some complications along the way.
You can use calculators like this one to get an idea of exactly how the new tax bill is likely to affect you.
Remember, this tax law takes effect in 2018. So when you’re filing your 2017 taxes in early 2018, the 2017 deductions and personal exemption still apply.
Published or updated February 22, 2018.