Once you bid adieu to Santa Claus this holiday season, you’ll find yourself waiting for good ole Uncle Sam to show up next.
The question is, will Uncle Sam’s outstretched hand come bearing gifts (a tax refund), or will he be taking money out of your pocket instead? #badbaduncle
Now is the best time to start planning ahead to reduce your tax burden next year.
Here are some of the most important 2018 tax facts you need to familiarize yourself with today.
Let’s get started!
A Look at 2018 Tax Brackets
One of the most important things you need to know for the 2018 tax year is the tax brackets along with their corresponding tax rates.
The seven tax brackets and rates for individual taxpayers are as follows:
- 10% if your taxable income happens to be $0 to $9,525
- 12% (plus $952.50) if your taxable income happens to be $9,526 to $38,700
- 22% (plus $4,453.50) if your taxable income happens to be $38,701 to $38,700
- 24% (plus $14,089.50) if your taxable income happens to be $82,501 to $157,500
- 32% (plus $32,089.50) if your taxable income happens to be $157,501 to $200,000
- 35% (plus $45,689.50) if your taxable income happens to be $200,001 to $500,000
- 37% (plus $150,689.50) if your taxable income happens to be over $500,000
Here’s a look at the tax bracket/rate background for married couples:
- 10% if your taxable income happens to be $0 to $19,050
- 12% (plus $1,905) if your taxable income happens to be $19,051 to $77,400
- 22% (plus $8,907) if your taxable income happens to be $77,401 to $165,000
- 24% (plus $28,179) if your taxable income happens to be $165,001 to $315,000
- 32% (plus $64,179) if your taxable income happens to be $315,001 to $400,000
- 35% (plus $91,379) if your taxable income happens to be $400,001 to $600,000
- 37% (plus $161,379) if your taxable income happens to be over $600,000
Now, let’s take a peek at a few deductions you should know about below.
Standard Deductions and Deductions for Interest Paid on Student Loans
A major change that will take place for the 2018 tax year is that the standard deductions will rise to $12,000 for an individual taxpayer.
These amounts will also increase to $18,000 for any person who is the head of his or her household, and it’ll jump to $24,000 for any married couple filing jointly, as well as a surviving spouse.
Note that there’s also an extra standard deduction for the blind or for those who are aged: it’s $1,300. However, for an unmarried taxpayer, this additional deduction amount jumps to $1,600.
In addition, the deduction for somebody whom another taxpayer could claim as a dependent cannot surpass $1,050, or a total of $350 plus the other taxpayer’s earned income.
Also, when it comes to student loans, for the 2018 tax year, the most the government will allow you to deduct for any interest you’ve paid on your student loan will stay $2,500.
Local and State Tax Deductions
Deductions for local as well as state property, sales, and income taxes exist for the tax year 2018, but they are limited.
The total you can claim for all local, as well as state taxes together, cannot surpass $10,000, or $5,000 if you’re married but filing separately.
Note that you typically deduct these taxes on your Schedule A form. Also, you can’t deduct property taxes for foreign real estate under this particular exception.
For the tax year 2018, personal exemptions don’t exist. So, let’s take a look at whether you’ll have to file a tax return next year for 2018.
If you’re an individual taxpayer, you’ll need to file if your 2018 gross income surpasses the standard deduction.
Meanwhile, if you’re married, you’ll have to file if both parties’ gross incomes together exceed the standard deduction on your joint return. Of course, you both must live at the same house and can’t file separate tax returns.
In addition, neither of you can be another taxpayer’s dependent if the other taxpayer’s income outside of earned income exceeds $500.
Child, Adoption and Earned Income Tax Credits
This tax credit for the tax year 2018 will expand to $2,000 for each child. In addition, it can be refunded up to a total of $1,400.
Also, the credit that is allowed for adopting a child who has special needs is a total of $13,810.
Regarding earned income tax credits, the maximum amount for 2018 is a total of $6,431 if you are filing jointly with your spouse and have three-plus qualifying children.
Medical Savings Accounts
When it comes to health plans with high deductibles in 2018, the most you can pay out of pocket is $4,550 if you’ve got self-only coverage in a medical savings account. Your annual deductible must be at least $2,300 and no greater than $3,450.
Meanwhile, if you’ve got family coverage with a high deductible, the most you can pay out of pocket is $8,400. Your annual deductible total must be at least $4,550 and no greater than $6,850.
There is a change in the mortgage interest deduction amount for tax year 2018.
You can deduct interest on any mortgage you use to improve, buy or build your house up to a total of $750,000. This amount is $375,000 if you’re married but filing separately.
However, if you took out your mortgage before Dec. 15, 2017, that cap is a million dollars, or half a million dollars if you’re married but filing separately.
How We Can Help
We offer top-notch wealth management services as well as accounting help for small businesses.
Our goal? To help you to reduce your tax liability and have a solid system in place for tracking your numbers and managing your cash flow.
Get in touch with us to find out more about how we can help you to avoid costly tax-related mistakes and make informed decisions about your business’s income. With our help, the upcoming tax filing season for the 2018 tax year can easily become your most positive one yet.