2018 Income Tax Changes For Individuals Explained

This is NOT tax advice, please talk to an IRS lawyer first.

Machine Video Transcription Below

Hello and welcome to money in life TV,  my name is Mike welcome to 2018 everybody and since it’s the start of 2018 what better topic to start off with then tax reform! In today’s video I’m gonna be covering in plain English many of the 2018 tax law updates that will affect your personal tax return. Just a reminder that for 2017 for this tax season and the one that’s coming up in April, remember, you’re still gonna follow the 2017 rules. OK many people are getting it confused which is easy to do these new tax law changes are really gonna impact the return you file in 2019. Just keep that in mind you were still for 2018 on April 15th we’re still gonna follow the 2017 tax law.

Income Tax Changes for 2018

I thought the easiest way for me to show you this information and talk about the tax cuts in jobs acts 2018 tax reform bill was actually to show you on screen so that you have a visual of everything we’re gonna be talking about. What I did is I made a spreadsheet based off many sources and just so you know here’s some links to the sources I use to create this spreadsheet.  if you want more detail or if you feel there’s something hey Mike you didn’t cover 2018 tax reformthat well check out those links there’s a ton of information in there including including a link to the actual legitimate tax bill itself now if you’ve never seen a tax bill what it looks like you can actually find them on the Congress gov so but I already have it up so just so you know what a real tax bill looks like oh my goodness it’s a real tax bill this is what it looks like so once they’ve you know battled it out in Congress and it’s went through the house the Senate the Ways and Means Committee and all those different places then they get this bill finalized and as you can see if you have trouble sleeping at night then please feel free to read this.

It’s a hundred and eighty five pages of legal jargon about tax cuts and what more could you ask for really ladies and gentlemen I couldn’t ask for more myself I have not had trouble sleeping since but this is where the official bill is and this is where you can read it.

If you want to learn more so let’s go ahead and get started so let’s start off we’re talking about rates because that’s one of the biggest changes that has just occurred is the tax rates themselves so revised tax brackets and I’ve only showing two statuses here. If you file single and if you filed married find joint why because those are the most two common filing statuses that are out there as you can see the 10% is still pretty much the same however overall though the rates have decreased okay on so this like the 12% bracket. I will tell you that that used to be 15% the 22 percent bracket used to be 25 percent okay so basically the tax bracket rates reduced on average by 3 percent per bracket if you want to know more about brackets work that I highly encourage you to go check out this video I made about how federal income tax brackets work and I tried to make it fun by using a stuffed animal to explain how taxes are calculated so check it out I think you’ll find it helpful. If you don’t quite understand how this actually calculates out and how it impacts your paycheck speaking of paycheck you might want to check with your payroll department of your company or firm wherever you’re working at and see what they’re doing with your withholding’s.


Depending on who you are you might have to up with your withholding sleeping on how much you know income you make or you might decrease it a little bit if you know with these new tax savings so it’s just depends ok one of the major changes is with the standard deduction. What they’ve done is they’ve basically took the standard deduction and they’re gonna double it for you so you’re gonna get a higher standard deduction which means in plain English you pay less tax so it’s not a bad thing at all. So in 2017 you can see that if you were single your standard deduction was 6500 if you were married it was 13,000. Well look at 2018 if you’re filing single your standard deduction is now 12,000 and you’re married filing joint standard deduction is now 24,000. Very nice. So I expect it being twenty four thousand I expect even less people to itemize than before.

Personal Exemptions

So the next thing let’s talk about is personal exemptions. The standard deduction is more favorable for us however what they did in this new tax bills they took away personal exemptions. When parents said oh we’re gonna if you were you know if your remember when you were growing up your parents said well we’re gonna claim you on our tax return well when they said we’re gonna claim you what they really meant is that we want a deduction for for claiming you on our tax return. That deduction they were talking about is the personal exemption. What they’ve done in this new tax bill is take it away so before, then every exemption or every person you claimed like your spouse, your kids, etc. For each person you were getting 4050 dollars in in an income exemption so it reduced your income. So what they’ve done essentially is for 2018 that the whole idea of you know the more kids you have the more higher deduction you can you can get. That’s not the case anymore. They’ve taken away personal exemptions so you it doesn’t matter if you have one kid or ten kids you’re not gonna get that personal exemption. You’re not gonna get that 4050 dollars per child anymore like 2017. You will just remember that but for next year when in 2019 when you go to filing your tax return you’re not gonna have that anymore. So that’s kind of a downside. They’ve given you more deductions on first your standard deduction but they’ve taken away your personal exemption.

The next thing so since they did take away personal exemptions obviously, a lot of people are not happy about that. To kind of offset that a little bit they’ve also increased this child tax credit which is a good thing. That means for your for your taxes that’s a good thing. It’s gonna help you save tax so as you can see here in 2017. The credit amount was up to $1,000 the refundable amount. The child tax credit is a refundable credit which means if you owe no tax if you get this credit you’ll still get a refund which is great. So what they’ve done for 2018 is they said okay well we’re gonna up that credit amount to two thousand and if a person ends up owing no tax at all well we’re gonna still gonna refund them fourteen hundred dollars. That is so they’ve given you a slightly better child tax credit so which is that’s pretty cool.

State and Local Taxes

Let’s go on to state and local taxes. If you might have heard the acronym salt well that’s what it is that’s what they mean when you hear the term salt state and local taxes. This one is big. This is one of the biggest changes they made. So what they did is they’re gonna limit how much we can deduct on our itemized for state local taxes. Now you would not unless you itemize. Let me just make this clear. There’s a lot of misunderstanding because a lot of people don’t. There’s nothing bad about this, but a lot of people don’t understand tax. Unless you’re able to itemize you would get no benefit from the state tax deductions. If you did itemize these deductions were huge in fact they were crucial, allowing you to itemize in the first place. In 2017 as you can see all state tax amounts are deductible; your property taxes, your state income taxes. In 2018 as you can see this is limited now at ten thousand. Meaning of all of your state income taxes, property taxes, hits that ten thousand dollar mark it doesn’t matter. You cannot have any more than that, they’re limiting you to that amount. Basically if you’re somebody who works in a high income tax state or pays a lot of property taxes, this is gonna hurt you. If you heavily itemized on your taxes your probably gonna be end up paying more tax because of this new bill.

Mortgage Deductions

Let’s go down to mortgage interest deductions. I saw a lot of confusion around this one. A lot of people were saying “oh I need to go sell my house or because I need to go buy a house right now before these new tax bills take effect because I won’t be able to deduct my mortgage interest.” That’s simply not true and it just shows how much of a lack of understanding there is when it comes to taxes. If your mortgage interest is still deductible let me make that clear your mortgage interest is still deductible. Let me show you the difference right now. In 2017 your mortgage acquisition, meaning you took out a mortgage to buy a home, in 2017 you were allowed to have up to 1 million dollars in mortgage debt and you would still be able to deduct that mortgage interest. Mortgages existing before 2018 will not be affected. If you already have a mortgage you’re fine, don’t even worry about it. It’s only dealing with Mortgage acquisition debt you incur after are starting in 2018. Also in 2017 your home equity loan interest is deductible. This is a big change in 2018 that is gonna be no longer the case. In 2018 your home equity loan interest is no longer gonna be deductible. If you if you think you can borrow a ton of money from your home and still be able to deduct it, you’re gonna be out of luck. Keep that in mind.

Now let’s take a look at the interest for mortgage acquisition debt. You can still take out a mortgage up to seven hundred and fifty thousand dollars, so it’s really not that different from a million dollars. You can still deduct that mortgage interest.

“Miscellaneous itemized deductions that are subject to 2% floor or repealed.” So what what the heck does that mean? Basically it means if you had un-reimbursed employee expenses like your job, job travel, union dues, job education. Normally you’d be able to deduct your accountants preparation fees if you were able itemize. Now it’s no longer going to be the case. You’re no longer able to deduct those. I don’t mean deductions, but once again unless you itemize it doesn’t matter. Anyways, because you’re gonna get the standard deduction let’s talk about education.There was a lot of heat around education and initially a lot of the education credits and so forth were up for grabs of being impacted and repealed. Luckily those are still in effect so as you can see what I wrote here is education credits will remain unchanged, but there will be some modifications to 529 plans. I am not aware of the details of those changes at this time, that’s what I’ve heard.


Let’s talk about your 401k. There was a lot of talk about your 401k deductions being limited, so you know what you contribute from your check to your 401k. They didn’t touch contribution the rules are still the same, so basically if you’re working somewhere and you have if you you’re part of your employers qualified retirement plan you can still the defer up to $18,000 of your income to your 401k. If you’re under the age of 50 with your 401k you can contribute up to $24,000 of that. A 401k on change I just want to point out this one; if you have a spouse and you’re divorced and the court orders you to pay alimony to them, then whatever amount of alimony you give them, let’s say it’s like $10,000 you would not count in your income. This is because you had to pay that money to them and they would include that on their tax return. This is interesting. With the new alimony change the spouse who pays alimony is no longer allowed an income adjustment. If you were thinking about divorcing your spouse and you knew there was a good chance to get alimony wouldn’t this be even a greater incentive to leave your spouse because you’re gonna get tax free money from them. You don’t even have to claim it anymore. I’m not a fan of this one. I think the fact that they cannot deduct it is completely unfair but that’s just my opinion.

Estate Taxes

Let’s go now move now into federal estate tax. This change is massive. Probably less than 5% of the entire population isn’t affected by that. Less than 1 in 10,000 people have to even file an estate tax return. You might have heard that this bill does benefit the rich. Well of course it does because that’s all tax bills. If you haven’t noticed, taxes have generally favored business owners. Enough so of course if you’re super wealthy you’re not gonna like the estate tax. They couldn’t completely repeal it so it’s still in effect, but they’ve doubled the exemption amount on it. In 2017, if you were single you had basically five and a half million in assets, anything above that you would have to pay an estate tax. If you’re married and you had around eleven million dollars in assets, anything above that you would have to pay an estate tax. If you don’t know what an estate tax is, imagine you’ve worked your entire life. You saved, you scrimped, you work your butt off and you built your own business. You saved up millions and millions of dollars. You were responsible to your money, you didn’t inherit it. Let’s say you you were single and you had ten million dollars.

Now okay ten million dollars in assets when you die well in 2017, you could you could say of my exemption of five and a half million dollars. anything above that is subject to estate tax. What the IRS does is that if they would come in they would see your ten million dollars and they would say “well you have two million dollars, your exemption is only five and a half, so four and a half million dollars of that is subject to estate, tax and because we feel like you have too much wealth, we’re gonna tax you on that remaining four and a half million dollars in assets and tax you at forty percent.” That’s basically what an estate tax is. The recent changes are gonna really help out people with a lot of assets. Now if you’re single you can have 11 million in assets before paying any estate tax. If you’re married you can have up to 22 million dollars in assets before paying any estate tax. Remember, anything over these amounts is taxed at 40%.

So what about the alternative minimum tax? Real quickly, if you’re single your exemption amount is around seventy thousand. If you’re married it’s around one hundred nine thousand. This is for people who make a lot of money. This alternative minimum tax is not something that affects most people. It’s highly complicated so I’m not gonna go into detail on that. There’s also a new alternative minimum tax phase-out amount. The phase-out begins at five hundred thousand.

Affordable Care Act

The new tax bill repeals the shared responsibility requirement for full coverage health insurance. When the Affordable Care Act came into play you would be penalized if you and your family did not have full coverage health insurance. What they’re doing with this is they’re gonna start repealing that penalty. That means that penalty is no longer in effect. However it is still in effect in 2017 and to my knowledge it’s still gonna be in effect for 2018 as well I’m not sure about the 2018 part but I would expect that you’re gonna need to have full coverage health insurance to avoid penalties for 2017 and 2018.

Capital Gains

Capital gain rates are essentially gonna remain the same. they’re going to be indexed for inflation so that no changes their casualty theft losses no longer applies unless a federally declared the disaster. If some of the steals from you or damages your property you can’t really get a deduction for anymore unless it’s something like a major fire, tornado or hurricane that’s declared a federally. Declared disaster moving reimbursement. This one’s interesting. Moving reimbursement and moving deductions are suspended for most people except the Armed Forces, so basically now if you’re moving from one job to another you could you’re no longer gonna be able to get the moving expense deduction starting in 2018. Keep that in mind unless you’re part of the Armed Forces. Charity deductions are something a lot of people were wondering about. “What about if I donate to charity how does that impact me” is that still you know is that still a thing it’s still in play nor in 2017. It’s limited to 50%. You can donate up to 50% of your adjusted gross income is still good to do direction if you itemize so once again if you itemize then it matters. If you don’t itemize it doesn’t matter. With a new higher AGI threshold it is now is 60% instead of 50%. I don’t know if it’s gonna impact donations to charities, we’re gonna have to see.

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