5 New Changes With the 2018 Law

There is a lot of information out there with the new tax law changes, from various sources both from those in the tax business and those not in the tax business. Please be careful what you read from those not in the regular business of filing individual federal income tax returns. Taxes are not unilaterally the same for everyone, and the changes will mean different things for different people. The laws apply to you based on your particular facts and circumstances.

Knowing that, there are many things that are changing for everyone. The change is the same, but the impact (dollar change) it will have on your personal tax return WILL vary from your friends and family.

The tax rates have changed.

The general rate at which we are taxed personally has gone down. Most of us would shout YAY for such a change. The catch is, that the change did not only happen on the tax return. It also affected how much money comes out of your paycheck. Your payroll uses, in simple terms, a pre-determined math table to compute how much to take out of your check, which is modified by the form they asked you to fill out when you were hired (Form W4). Due to the tax rate changes, their tables were updated. Just because the tax calculation for you may result in $1,000.00 (number picked at random) less in taxes – if your paycheck actually pays $950.00 (again picked at random) less in taxes, your refund will only increase by $50.00. Not a bad thing, you got your money during the year instead of at the end of the year. The system was designed, and a lot of work went into, trying to balance it as best as possible.

However, due to your personal facts and circumstances, it is also possible your taxes only go down by $200.00 and your paycheck still pays $950.00 (a made up number, it varies based on your pay) less in taxes, that means that you lose dollars on your refund, or owe more money than you have in the past. Please be ready to fill out a new form W4 as soon as you have calculated your tax return. That will help your payroll make the appropriate adjustment to your paycheck so the tax return is much closer to what you would like it to be next year. The IRS has been putting out a voluminous amount of media urging taxpayers to look closely at their paycheck withholding because it is likely to surprise a lot of people.

Personal exemptions have been removed.

This can be a tricky one to talk about. In the past, there was a deduction per person listed on your tax return. You count yourself, spouse, and dependents. The deduction in 2017 was $4,050 per person. There is NO deduction per person in the new tax law. There were things done to mostly balance it out, such as increasing the standard deduction, lowering the total tax rate, increasing the child tax credit (kids under 17) and adding a family member tax credit (kids 17 or older for example). Claiming children under or over 17 still helps you pay less taxes, it is just a little bit less than it was in the past.

The child tax credit changes will be where a lot of variance will happen if people compare notes one with another. The child tax credit has been doubled to $2,000.00 but the total refundable credit is only $1,400.00. That means for some, their child under 17 years old will offset the full $2,000.00 of taxes, while others will only increase their refund by $1,400.00. Please do not simply read the child tax credit doubled and expect a $1,000.00 increase in your refund per child. It may be true, but it is also possible it will not – it will depend on your facts and circumstances.

A limit was introduced to the state and local taxes you pay as a deduction.

 2017 and prior, you were able to deduct all the property taxes on your home and second home, in addition to all the state or sales tax paid in the year. 2018 and forward, you are limited to a total of $10,000.00. If you don’t own a home, or your property taxes are very low, this change may not affect you (because you’re likely under the $10,000.00 amount). If you own a larger home, or purchased 3 cars in 1 year (or live in a state with state income tax withheld from your paycheck) you are now only allowed to claim the first $10,000.00 of those deductions as a total. The rest is simply disallowed.

Deduction for expenses paid as an employee.

This will be another very short and very sad section. 2017 and prior, the expenses you incurred as an employee (work expenses) that qualify as deductions that you were not reimbursed for were allowed as part of your itemized deductions. The section of the Form Schedule A (itemized deductions, or long form) for employee expenses, was removed.

While this can be a very frustrating change for many, please consider the increase in the standard deduction as mentioned above. Meaning for some, you gained and lost deductions, not only lost deductions. For others though, it is a simple loss in deductions, which makes item #1 of this post, especially important to those in this circumstance.

If you are a contractor, or own a small business, there is no change to your work related expenses.

Postcard tax return.

 The IRS has changed their forms to being a partial page each, but at the same time not actually simplifying anything (as of the writing of this blog at least). The information is now spread out across more pages. It is true that for some with very straightforward circumstances, it will be simple. It was simple before, too. Most everyone has 2-3 things different than 1 paycheck only. It could be daycare, a small side business or a rental property. Many look at the tax preparation industry and think we won’t be needed any longer. I disagree, and ask you to consider this – if the forms and laws have changed so dramatically, how can you be confident of what you are reviewing to know it was filled out properly? We have that confidence and expertise.

In a year of such dramatic change, we urge you to please seek a competent tax professional, especially one who values educating and elaborating on your tax return and makes recommendations for change based on your particular facts and circumstances.

Charles Steinmetz
Senior Tax Professional

The Molen & Associates Difference

Mike Forsyth

“Super helpful and timely. This is our first year with them and we look forward to trusting them with our taxes and business books for years to come.”

Caitlin Daulong

“Molen & Associates is amazing! They run an incredibly streamlined process, which makes filing taxes a breeze. So impressed with their attention to detail, organization, and swift execution every year. Cannot recommend them enough!”

Sy Sahrai

“I’ve been with Mr. Molen’s company for few years and I felt treated like family respect and dignity. They are caring, professional and honest, which hard to find these days. Love working with them.”

Should I Open an HSA?

Should I Open An HSA Account? Are you considering a Health Savings Account (HSA)? If so, it is vital to understand what exactly an HSA entails. With this guide, you'll learn all about it: the advantages of an HSA and how it can help you manage your medical expenses....

Personal Finance Tips for Young Adults

As someone who has been working for most of their life, I wish there was someone out there who had shown me the correct way to save money for my future. Now that I am in my 30s, I have been getting better at saving money, but there are some personal finance tips that...

How to Track Expenses

There are many different methodologies, tools, tips, and tricks for tracking expenses, and it ultimately depends on your lifestyle and how actively and accurately you want to track them. This is information I’ve pulled from other sources and compiled into a few...

How To Accurately Record Commuting Mileage and Increase Tax Deductions

Increase Tax Deductions With the Business-Mileage Rule Using the Business Mileage tax deduction can be tricky. There are lots of situations that count while others do not. We don’t like commuting mileage. You should dislike it, too. It’s personal. It’s not deductible....

Bookkeeping 101

As a new business owner, you will certainly have some responsibilities you won’t be able to avoid. One of those non-negotiable part of your business is producing financial statements. It can be overwhelming trying to master a topic such as bookkeeping but don’t worry...

Bankruptcy – Everything You Need to Know

Everything you need to know Filing for bankruptcy protection is considered a statement on your ability to repay your debt to your creditors. Filing for bankruptcy will also put a halt to foreclosure or legal actions against you, and it stops creditors from calling and...

Top Tax Tips for 2023

Tax Refunds May Be Smaller This Year Plan now to learn these 2023 tax tips avoid surprises in the future! If you’re expecting a tax refund in 2023, it may be smaller than last year, according to the IRS. Your annual balance is based on taxable income, calculated by...

What is an EA?

Have you ever seen the title EA next to a tax professional’s name and wonder what it means? Or maybe you’re familiar with the title and you’re curious about the differences between an EA and CPA? Either way, in this blog I will be answering these frequently asked...

History of Federal Income Tax Rates: 1913 – 2021

The United States federal government levies taxes on the income of its citizens and legal residents. The Internal Revenue Service (IRS) is the agency responsible for collecting these taxes.  Federal income tax rates have changed several times since 1913, when the...

Familiarize Yourself With Tax Terminology

Yes, I know, tax terminology feels like a whole new language. For most people all of tax forms can be even more confusing than a foreign language. What’s the difference between itemized deduction and standard deduction? What’s Income tax?  These words and more tax...

Request an Appointment Today

13 + 14 =

Call us at

Pin It on Pinterest

Share This

VOTE FOR

MOLEN & ASSOCIATES

FOR BEST TAX FIRM

As part of the Houston Chronicle's "Best of the Best" Competition 2023

You can vote every day from March 27th to April 10th