7 Tax Changes Your Members Need to Know About
On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (TCJA), a tax reform package that many have called the largest piece of tax reform legislation in nearly 30 years. The TCJA brings with it a number of rule changes that will impact taxpayers on income earned in 2018, and many Americans — especially those in the middle class or with small businesses — may see higher refunds than normal.
Taxes can be a headache, and not all taxpayers fully understand how the new changes will affect them. The impact of the TCJA presents an excellent opportunity for credit unions to offer financial education in a meaningful and effective way. Many members already turn to their credit unions for assistance on financial matters.
Credit unions find themselves in a good position to not only guide members through how tax reform will impact their filing, but to also highlight other financial education tools that may be available.
However a credit union reaches their members with helpful tax information, the following seven changes should be included:
- Lower individual tax rates
Many Americans will find themselves paying lower taxes for 2018 due to lower tax rates and updated thresholds. The seven current tax brackets will remain, but tax rates have lowered for both those earning the most (more than $500,000 a year for single filers, or $600,000 a year for married joint filers) and those earning anywhere from $9,526 to $200,000 a year for single filers, or $19,051 to $400,000 a year for those filing jointly. Members should also be aware of the big changes in the threshold for each bracket — certain taxpayers may find themselves in an entirely new bracket when filing their 2018 taxes.
- Increased standard deduction
As a result of the TCJA, standard deductions are now nearly double what they were under the old rules. In 2017, single filers could claim a standard deduction of $6,350, while married couples could claim $12,700 and heads of households could claim $9,350.
In 2018, Individuals can expect to claim a standard deduction of $12,000, married couples $24,000 and heads of households $18,000.
- Increased child tax credit
Taxpayers expecting to claim a child tax credit can also expect an increase, while phase-out thresholds have also been adjusted to start at higher income levels — allowing more families to claim the credit. According to the new rule, the child tax credit increases to $2,000 per qualifying child under the age of 17 (double the $1,000 credit of 2017). The phase-out for the credit will also begin at $200,000 for single filers and $400,000 for married joint filers, a significant leap from the thresholds in 2017: $75,000 for single filers and $110,000 for married joint filers.
- Elimination of dependent and personal exemptions
Dependent and personal exemptions have been suspended by the TCJA.
- Elimination of some itemized deductions
Itemized deductions have been reduced, with some eliminated altogether. This includes changes to medical and dental expenses, state and local taxes, home mortgage interest, charitable donations, job expenses, loss from theft, etc.
Members should look into what important deductions they will no longer be able to claim for 2018.
- $10,000 cap on the deduction for state income taxes, sales, and local taxes and property taxes combined
Taxpayers are now limited to a $10,000 cap on state, local and property taxes combined.
- A 20 percent deduction for “pass-through” entities (sole proprietorship, partnership, S corp.)
Taxpayers who are self-employed, have a partnership or an S corp. may see lower tax liability and higher refunds due to new rule changes. The TCJA allows qualified businesses to deduct up to 20 percent of their income and increases the amount they can expense for business equipment from $510,000 in 2017 to an even $1,000,000 in 2018.
Alerting members to these important tax changes builds trust and deepens the relationship between member and credit union, opening other financial opportunities for the member with their credit union beyond tax season.
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