For the past month, postal carriers have delivered a steady stream of greeting cards, advertisements and Amazon packages. Now that the flow of holiday mail has subsided, Americans are checking the mailbox for a different type of seasonal correspondence: tax forms.
Tax season is officially upon us. As you begin gathering your tax documents, it wouldn’t hurt to brush up on the latest tax laws. The past year brought the biggest tax overhaul in three decades — more than 1,000 pages containing significant changes you’ll need to know about before you file.
Will you get a bigger refund this year? That depends on your situation. In general, the average taxpayer probably won’t see an increase in taxes and some individuals and small businesses may end up paying less.
"In general, most individual taxpayers should see at least a modest reduction in federal income taxes this year due to the combination of lower tax rates, increased standard deduction and [an] increased child tax credit," says tax analyst Mark Luscombe.
Here’s a look at some of the most important changes that are likely to affect our members:
You could be in a new tax bracket
The tax brackets and tax rates changed for the 2018 tax year. Depending on how much you earn, you might find yourself in a different tax bracket or paying a lower tax rate than you did in 2017. For example, if you’re single and make $40,000 a year, your tax rate will drop from 25 percent in 2017 to 22 percent in 2018. The difference, however, might not show up in a refund because the income taxes withheld from most people’s paychecks have already been adjusted.
It may not make sense to itemize
If you normally itemize your deductions — which roughly 30 percent of taxpayers do — you might not need to this year. The standard deduction has nearly doubled, which means single taxpayers will see their standard deduction leap from $6,350 in 2017 to $12,000, while the deduction for married couples filing jointly will rise from $12,700 to $24,000. This means fewer people will need to itemize.
You might get fewer tax breaks on your home
If you own a home, you’ve probably gotten used to deducting your property taxes in full. Now the amount you can deduct is capped at $10,000 — and that $10,000 includes state and local income taxes as well as property taxes. Also, the deduction for interest now applies only to mortgage balances of $750,000 or less, down from $1 million.
Your child tax credit increases
For families with children, the child tax credit has doubled to $2,000 per child. There’s also a new credit of $500 for dependents 17 and older — good news for parents of college students. That credit, however, can only be used to reduce one’s taxes and won’t be added to a refund.
You can contribute more to your retirement plan
Employees who participate in certain retirement plans — such as a 401(k), 403(b), most 457 plans and the Thrift Savings Plan — can contribute up $18,500 this year, a $500 increase from 2017.
Caps for contributions to traditional individual retirement accounts remain unchanged — $5,500 for workers under 50, $6,500 for workers 50 and older. The income limits for completely deducting IRA contributions increase slightly — from $62,000 to $63,000 for single filers and from $99,000 to $101,000 for joint filers.
These are a few of things that have changed since the last time you filed a tax return. If it seems like a lot to keep track of, don’t worry. OCCU member are eligible for discounts on TurboTax easy-to-use tax software — plus a chance to win $25,000. With the right tools, you can maximize your tax refund this year while taking full advantage of the new changes in tax law.
*Note: The above information is not intended as tax advice. Please consult your tax professional for tax information.