New tax law goes into effect for the 2018 tax filing season

HUNTSVILLE, Ala - As people file their tax returns they are going to notice a lot of changes going into effect this year. 2018 marks the first tax season the 'Tax Cuts and Jobs Act' is in effect.

WHNT News 19 is breaking down what you need to know.

If you were on the edge of your tax bracket last year, you could be in a lower one now. The new law also decreased tax rates for every bracket except the lowest one. The highest rate has been reduced to 37% compared to 39.6%.

"It can make a lot of difference in that regard," Robert Seaman, CEO of Seaman, Shinkunas & Lindgren, P.C., said.

The standard deduction has increased. For individual filings, the standard deduction was $6,350 in 2017. It has increased to $12,000 for the 2018 tax filing season.

"If you are married filing jointly your deduction, your standard deduction would be $12,500 (in 2017)," Seaman continued. "If you marry filing jointly this year its $24,000.

Seaman says this means filing could be considered 'simpler'.

"A lot of people are going to be able to choose to do a standard deduction because their itemized deductions are less than the total of $24,000," Seaman added.

However, Seaman says there is a downside to that. There are no personal exemptions in 2018. In 2017, a family of four would get a $12,500 standard deduction as well as a $4,050 personal exemption for each family member, totaling $16,200. The entire amount of their deductions would be more than $28,000. So their $24,000 standard deduction in 2018 would be lower than before.

"The exemptions hurt families especially with large families, ok," Seaman stated. "So, what they did for kids that qualify, alright, you are now able to get a $2,000 per-child tax credit versus $1,000 tax credit.

There are nine deductions that are nixed in 2018.

These include those personal exemptions, moving expenses (excluding military members), certain job expenses, and parking and transit reimbursements. In some cases, people will no longer be able to deduct home equity interest.

"If you have a home equity loan it has to be specific, the proceeds have to be specifically be used on improvement of the property or on your personal assets, otherwise you won't be able to deduct," Seaman advised.

People will no longer be able to deduct miscellaneous deductions.

"You no longer can deduct your union dues," Seaman explained. "You can no longer deduct out of pocket employee expenses and so forth, ok, as you might have in the past. Your tax preparer is no longer deductible."

He also wants to remind people that the tax tables change in February. As a result, people may get a smaller refund than they think they're owed.

"The tax tables that your employer withholds on your withholdings for your federal got changed in accordance with the new tax brackets," Seaman stated. "So you actually, in a lot of cases would have gotten a little bit more money in your check, net, because less of your percentage was taken out. Some people are thinking, well I might get a big tax refund. Well, maybe not you may have been getting that money all along and getting advantage of the lower tax rates."

Seaman said it's too early to tell if the new law will save money or cost taxpayers extra.

Tax preparers urge people to file early

Identity theft continues to be a looming concern that affects several aspects of our lives. Filing taxes is included in that. Tax preparers at Seaman, Shinkunas & Lindgren, P.C. recommend filing early.

"If you file your return closer to the deadline and someone has obtained your identity information they could get a refund," Seaman said.

If somebody tries filing taxes after their identity is compromised, Seaman says they may not be able to file.

"You're going to wind up getting a notice that, that social security number has already been used to file a tax return," he continued.

Seaman says that person's refund will also be delayed as the IRS sorts out that situation.

At H&R Block, tax analysts there want to remind people that the Path Act will cause refund delays.

"The IRS is verifying people who have earned income credit, earned income tax credit, child tax credit, and education credits like the American Opportunity Credit," senior tax analyst, Darlene Williams said.

She says this could pump the brakes on many people hoping to get their refund quickly.

"If you have children and you receive earned income credit and child tax credit, if you're a student and you file alone as single and you have education credit, if parents are claiming the students on their tax returns and there's education credit and earned income credit, those are the types of things that are being affected by the Path Act," Williams continued.

She says people affected by the Path Act may not see their refund till February 27th or as late as March 4th.

 

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