3 Reasons Your Taxes Could Be a Lot Easier Next Year
| Photographs By Syda Productions
2017 was a hard year for Americans preparing their taxes. With tax reform getting passed in late December, taxpayers had to scurry to figure out whether to make last-minute planning changes to take advantage of expiring provisions while trying to push more income into lower-tax future years.
By now, you’ve hopefully gotten your 2017 tax return done and filed with the IRS and are happy to put another tax season behind you. Yet as you close the books on your tax records for another year, there’s reason for optimism. Many taxpayers will find it a lot easier to prepare their taxes for 2018 when tax season rolls around again. Here’s why.
1. You might not have to itemize anymore
Roughly 45 million taxpayers itemize their deductions, making up roughly three out of every 10 taxpaying households. The amount of work involved in itemizing deductions can be extensive, as you have to gather records on items like mortgage interest, state and local taxes, medical expenses, charitable contributions, and unreimbursed employee expenses. That recordkeeping can require extensive amounts of time during the year as well as at tax time when you need to compile and analyze all your deductible expenses.
Tax reform made it likely that a lot fewer people will need to itemize their deductions for 2018. The standard deduction amounts almost doubled, so that single filers will get a deduction of $12,000, heads of household $18,000, and joint filers $24,000. If your itemized deductions on your 2017 return are less than those higher amounts, then the odds are good that you won’t need to take the time and trouble to itemize next year.
Even those who find themselves above those limits in 2017 could find that the amount of deductions they can itemize for 2018 will go down. In particular, the new $10,000 limit on state and local tax deductions is the most likely to affect itemizing. Those who live in high-tax states could end up having to take the standard deduction in order to get the most tax savings available, even if they could have itemized more under the old law.
2. You might not have to pay alternative minimum tax anymore
The alternative minimum tax used to be something only ultra-rich taxpayers had to worry about, but over time, a wider range of upper-middle class taxpayers has had to deal with the AMT. This alternative system of taxation essentially requires you to do a completely separate set of tax calculations using different rules, and if the tax amount that this alternative system produces is higher than your regular tax, then you have to pay the difference as AMT.
Tax reform made two AMT changes to reduce the chances of taxpayers’ having to pay alternative minimum tax. First, it made substantial increases to the amount of income that’s completely exempt from the tax. More important for many higher-income taxpayers, tax reform also lifted the income limits above which those exemptions phase out. Together, the changes should keep many of the roughly 4.5 million taxpayers who currently pay AMT from having to deal with that tax going forward.
3. The kiddie tax got a lot simpler
Lastly, those who have children with significant amounts of unearned income will find the new tax rules a lot easier to navigate. Under old law, the so-called kiddie tax required parents to include children’s investment income above certain limits on the parents’ own tax returns. That often resulted in higher taxes, and it also involved often complicated calculations to figure out exactly how much extra tax you’d have to pay.
The new rules keep the kiddie tax, but they change the way it’s calculated. Rather than involving the parents’ tax return in the calculation, the new rules use the trust and estate tax brackets to impose taxes. That makes the work a lot easier, and it also opens up some opportunities for savings among parents who use tax-planning strategies that take advantage of the kiddie-tax provisions.
Wait ’til next year
If you’re tired of dealing with your taxes right now, you’re not alone. With any luck, for these three reasons, you’ll be among those who’ll have an easier time preparing their tax returns in early 2019.
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