Taxpayers to see changes due to recent reform

Jan. 07--Tax season is rapidly approaching and this year, taxpayers will start to see changes caused by the recent tax reform.

"Taxpayers have not seen this much change in taxes since 1986," said Thomas Moratto, CPA at Moratto Accountancy Corporation.

The Tax Cuts and Jobs Act of 2017 took effect Jan. 1, 2018 -- which means changes will be applied to income earned in 2018 and reflected on income tax returns received this year.

"The Tax Cuts and Jobs Act of 2017 -- Trump's tax cuts -- are actually going to be beneficial for most taxpayers," said Seth Fuhrer, CEO at Nickell Tax & Financial Planning in Marysville.

Even so, these changes can seem overwhelming and confusing.

Some key changes

* The new tax reform rules retain the seven tax brackets from previous years, but each bracket has been modified to lower most individual income tax rates. The new income tax rate brackets expire in 2027.

* Standard deductions will increase to $12,000 for those filing as single or married, almost doubling from $6,350. Those filing as head of household will also see an increased standard deduction of $18,000, up from $9,350 in previous years.

* The Child Tax Credit has doubled from $1,000 to $2,000 per qualifying child. A $500 credit is also available for dependents who do not get the $2,000 credit.

* "The Tax Cuts and Jobs Act of 2017 have removed exemptions and replaced them with a $500 tax credit," Fuhrer said. These exemptions have been suspended through 2025.

* The new tax rules have eliminated the penalty for lack of health care coverage but this penalty is only repealed for tax years beyond 2019. The penalty still applies this year.

* New homeowners can include the mortgage interest paid -- up to $750,000 of principal value -- on a new home in their itemized deductions. The previous $1 million cap still applies to homeowners that purchased or refinanced their home on or before December 15, 2017. These changes expire in 2025.

* "This property tax is only for primary residences and second residences like vacation homes," Moratto said. "Other property -- such as rentals and farm land -- is still fully deductible like before."

* For any separation and divorce agreements signed or modifies on or after Jan. 1, alimony can no longer be deducted by the party paying the alimony. This sum can no longer be claimed as income for the party receiving the alimony payment as well.

Common deductions that haven't changed

* Teachers can still deduct can up to $250 for unreimbursed expenses for classroom supplies or school materials from their taxable income.

* Electric car owners who purchased their vehicle after 2010 may be given a tax credit of up to $7500, depending on the battery size of their vehicle.

* For those paying back student loans, a deduction of up to $2500 can be made yearly on the interest paid on student loans.

Tax form changes

One important change to keep in mind while completing income tax returns this year is the differences between federal and state tax forms.

On the federal level, itemizing deductions may not add up to more than the standard deduction since it has now been raised.

"Most people will be taking the higher standard deduction instead of itemizing their deductions, even if they have itemized deductions in the past," Moratto said.

The standard deduction at the state level remains the same so those with itemized deductions higher than the state's standard should continue to itemize deductions on the state forms only.

It's recommended that people read all the instructions on the tax forms carefully, especially since the form will look very different compared to previous years.

Moratto estimates that it will take taxpayers 30 to 40 percent more time to complete their income tax returns this year due to all of the changes.

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