Worried about the tax law changes? Here's what you need to know about filing your taxes

If you're usually nervous about tax season, get ready for your anxiety to hit overdrive this year.

The Tax Cuts and Jobs Act (TCJA) approved by Congress in December of 2017 did more than just reduce the taxes taken out of our paychecks. It also made some big changes to tax returns for the 2018 tax year.

Here are some of the most significant changes:



New 1040 form
The first thing you may notice is that the 1040 form is different. It is now about the size of a large postcard. The front side is just for personal information. The rear has all your financial information.

Don't go looking for 1040A and 1040EZ forms, they have been eliminated. Everyone will fill out the new 1040 form. You may have to attach an additional form (Schedules 1 to 6) if you have to pay Alternative Minimum Tax or claim certain credits. Since the standard deduction is now bigger, it is expected that fewer people will have to itemize deductions. Those that do will still need to fill out Schedule A.




Standard Deduction
The tax reform law did away with the personal exemption. In 2017, that was $4,050 per person. That's the bad news. The good news is that the standard deduction nearly doubles from $6,350 used last year. It is now:

$12,000 for individuals
$24,000 for married couples filing jointly
$18,000 for head of households

The higher standard deduction is designed to make filing taxes easier with less of a need to itemize deductions - thus the smaller 1040 form.

MORE: Here are the benefits of filing your taxes early



Of course, it is never as easy at that, especially this year. Some experts say that families with several children may actually be hurt by the change because they can't claim exemptions for each child. Families will not know the full impact of the change until they do their taxes this year.

Child Tax Credit
The Child Tax Credit gets a boost this year from $1,000 to $2,000 per qualifying child. The child must be 16 or younger at the end of the year to claim the credit. A family that does not owe any taxes can still claim $1,400 of the credit.

The income threshold for claiming the credit goes up from $110,000 to $400,000 for married couples filing jointly. That means more families will qualify. For unmarried individuals it goes from $75,000 to $200,000.




Dependent Tax Credit
This year, there is also new $500 tax credit for qualified dependents that are age 17 and older. These could be (1) a dependent child who is between 17 and 23 years of age and is a student and (2) a family member for whom you provide more than half of their support. This can include parents, grandchildren, uncles, and in-laws.

Remember that tax credits reduce your tax liability on a dollar-per-dollar basis.



Mortgage Interest Deduction
A big change that will affect tax filers in expensive housing areas is the mortgage interest deduction. The new tax law capped the deduction at loans of $750,000. The debt limit used to be $1 million dollars.

Since the median home price in San Francisco is around $1.6 million, it is likely that anyone who bought a home last year will not be able to claim the full amount of the mortgage interest. The reduced limits do not apply to mortgage loans that were taken out before December 16, 2017 or home refinances taken out after the passage of the TCJA.

Interest deductions for home equity loans have also been eliminated for this tax year unless the money was used to improve a home. So if you took out a loan to pay off high credit card bills or buy a boat, you are out of luck.




Income/Property Taxes
Bay Area residents may want to sit down for this one. The new tax law is limiting itemized deductions for property taxes and state and local income taxes to a combined total of $10,000, or $5,000 for married couples filing separately. Previously there was no limit to these deductions. Again, this will affect people with expensive homes (which is the norm in the Bay Area) or those who own several properties.

Alternative Minimum Tax
The exemption amount for the Alternative Minimum Tax (AMT) is increasing from $71,700 for singles and $111,700 for married couples filing jointly to $194,800 for all taxpayers ($97,400 for married couples filing separately). This means fewer people will be affected by AMT this year.

This is the biggest change in tax law in decades. The best bet is to get your taxes done early to find out what all these changes mean to you and to avoid being surprised by a higher than expected tax bill.

The tax filing deadline this year is Monday, April 15, 2019.
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