Before you file your 2018 tax return, it is important to know that many changes were made when a new tax law was put into effect in the beginning of 2018. These changes impacted tax brackets, personal exemption, standard deduction, alternative minimum tax, child tax credit, earned income tax credit, adoption credit, student loan interest deduction, foreign earned income exclusion and medical savings account. I will walk you through each of these changes so you know everything you need to know before filing your 2018 tax return.
Tax Bracket Changes
Previously the tax brackets were as follows: 10%, 15%, 25%, 28%, 33%, 35% and 39.6%. For 2018, the tax brackets are changed slight to: 10%, 12%, 22%, 24%, 32%, 35% and 37%. Moreover, it’s important to not that the income thresholds for these brackets have changed, as well. The two charts below reflect the changes for single tax filers and married filing joint.
Personal Exemption
Prior to 2018, the personal exemption was $4,050 per person. However, with the new tax laws, the personal exemption has been completely eliminated.
Standard Deduction
The chart below reflects the changes to the standard deduction for 2018.
As you can see, it appears that the standard deduction has almost double from previous years. However, this is partially due to the fact that the personal exemption has been taken away. For example, if you are a single tax filer, your prior standard deduction of $6,500 plus your personal exemption of $4,050 would bring you to a total deduction of $10,550, which is just $1,445 less than the standard deduction for 2018.
Alternative Minimum Tax
The Alternative Minimum Tax (AMT) exemption amounts have been permanently adjusted for inflation. The new exemption amounts are as follows:
Child Tax Credit
Previously, the child tax credit maxed out at $1,000 per child. For the 2018 tax year, the child tax credit has been increased to $2,000 per qualifying child. In addition to the increase in the tax credit itself, the child tax credit is also refundable up to $1,400 where it previously was not refundable (meaning if you had no tax liability, you could not receive a refund due to the credit).
Earned Income Tax Credit
For 2018, the Earned Income Tax Credit (EITC) is maxed out at $6,431 (compared to $6,318 previously) for taxpayers filing jointly who have three or more qualifying children; the maximum credit for families with two qualifying children is $5,716 (compared to $5,616 previously); and those with one qualifying child face have a maximum of $3,461 (compared to $3,400 previously).
Adoption Credit
The previous maximum adoption credit was $13,570 and has increased slightly in 2018 to $13,810.
Foreign Earned Income Exclusion
Previously the foreign earned income exclusion was $102,100, but it has increased to $103,900 for the 2018 tax year.
When do you plan on filing your tax return?
