One of the biggest changes created by the Tax Cut and Jobs Act is the increase in the Standard Deduction. Essentially the standard deduction doubled for all types of filers. In 2017, if you were a single filer (or married filing separately) your standard deduction would have been $6350. In 2018,that number jumps to $12,000. For filerswho are married filing jointlythe number increases from $12,700 to $24,000. The standard deduction for head of household filers jumps from $9,350 to $18,000 in 2018.
Other Factors to Consider
This seems like a big win for most taxpayers. However, things aren’t always, as they seem. On paper,what’s not to like about an increase of nearly 50 percent? Nothing. The problem is there are several other factors in play that might end up negating the benefit of the increased deduction. In fact, depending on your tax situation the new standard deduction rates might not help you at all. Here are three situations that could reduce, or completely eliminate, the benefit of the new standard deduction rates.
this will likely play the greatest role in how much you benefit from the new standard deduction. In 2017, the amount for each exemption you claimedwas $4,050. That means, for a family of five, the total amount received in exemptions was $20,250. Assuming you used married filing jointly status, and you claimed the standard deduction that was a total of $32,950in deductions. With the personal exemption now gone and the standard deduction set at $24,000, that means you would lose $8,950 in exemptions. The more personal exemptions you claimed previously, the greater the hit you’ll take.This could really hurt larger families.You
one of the purposes of the increased standard deduction was to reduce the number of people claiming itemized deductions. While most taxpayers take the standard deduction, those who itemized typically saved substantially more. If you still want to itemize your deductions you can. But chances are, fewer people will be able to claim more than the standard deduction. That means, if you claimed $22,000 initemized deductions last year that $22,000 of deductions would mean nothing this year, because the standard deduction is set at $24,000. If your itemized deductions are still higher than the standard deduction, then this won’t affect you. But for most taxpayers it will eliminate several items they used to be able to count on to reduce their tax bill.
Decreased Itemized Value–
and speaking of itemized deductions, it might be tougher even for those who had more than the standard deduction last year. There are new rules regarding itemized deductions, including the new $10,000 cap on deductions paid for state and local taxes. This could be especially damaging to high net worth individuals. It could hurt those in high-tax states even more. So, if you relied on those taxes in the past to make your itemized deductions count, it could be more difficult to surpass the new higher standard deduction rates this year.