Here are some common questions and answers to help understand the new tax reform.
Q1. How will the increased standard deduction affect me?
A1. The increase in the standard deduction, coupled with the removal of the personal exemption, means more people may choose to take the standard deduction instead of itemizing. Today, fewer than one-third of taxpayers itemize, so the increased standard deduction may affect you favorably or unfavorably. I can help you figure out if or how you may be impacted.
Q2. How will the removal of the personal exemption affect me?
A2. Though the personal exemption is being removed, the standard deduction is increasing. The impact these two changes have will vary from person to person, so it’s important that we look at your specific tax situation to come up with the solution that’s right for you and gets you the maximum refund.
Q3. How will the change in number of tax brackets affect me?
A3. While the reduced number of tax brackets has gotten a lot of publicity, what really matters is the rate of the highest bracket you fall into along with all the other changes that are included in the newly passed tax legislation. Your marginal tax rate is only one piece of the puzzle as to whether you will owe more or less in taxes. We can sit down and go through your specific situation to find out for sure.
Q4. Will my refund go up because of higher child tax credits?
A4. While the tax credit amount per child is going up, personal exemptions are also going away, so the impact on your tax refund will depend on the overall impact of these credits and lost exemptions and other deductions. There are many moving parts to the the new tax law. How they all affect you collectively is what matters most. I can help you figure out if or how you may be impacted.
Q5. I understand there are new maximums on state and local taxes and on my home mortgage interest. Are these still deductible? Will my taxes go up?
A5. There will be a maximum allowable deduction of $10,000 for all state and local taxes, including income, sales, real estate and property taxes. This may affect you more if you live in a high-tax state than a low-tax state, but you still need to look at your own situation to see how this limit affects you personally. Home mortgage interest remains deductible; the new law places a limit on the size of the mortgage, not the interest on that mortgage. Also, the new law applies only to new mortgages taken out after Dec. 14, 2017. The new law doubles the standard deduction, so whether this impacts you depends on the total of your itemized deductions. As before, you can claim whichever is higher. There are many moving parts to the new tax law, so how they all affect you collectively is what matters most. I can help you figure out if or how you may be impacted.