You’re starting to get your W-2s and 1099s from 2017, and you know there was a tax code overhaul that passed in late December. But should you do anything differently now?
While nothing changes for filing your taxes this April, here are some of the biggest changes likely to affect you next year.
Personal exemptions and the standard deduction
Under the old tax code, the average family of four (that submitted taxes married-filing-jointly) received a tax break of $16,200 through the personal exemption, one $4,050 exemption for every member of the family. That’s gone now, but in its place the standard deduction is nearly doubled from $12,700 to $24,000.
That will leave a family of four with $4,900 more in taxable income than before.
“The idea is that that loss of $4,900 of shieldable income will be offset by the lower brackets,” said Rebecca Walser, a tax attorney at Walser Wealth.
New tax brackets
Your marginal tax rate is changing, but so are the income levels. Check out the new brackets and rates below:
State and local taxes
2017 will be the last tax year in which you’ll be able to deduct the total of your state and local taxes from your federal tax bill.
“It used to be — let’s say I lived in California or New York, and I had state income taxes, state property taxes and state sales taxes — I used to be able to, on Schedule A itemized deduction, list out exactly what I paid in state income taxes, state property taxes, and an estimate of what I paid in state sales taxes,” said Walser. “And then those three amounts together would count as a complete deduction, 100%, against my income so that I would not pay federal tax on the monies that was going to the state.”
The deductibility of all three state and local taxes will now be capped at $10,000 total. Many homeowners — particularly those in high-tax states — attempted to prepay their 2018 property taxes before the new year as a way to take advantage of the larger deduction in the old system. But the IRS announced that people can only deduct their 2018 state and local property taxes if they were assessed and prepaid in 2017.
There’s a good chance you filled out a W-4 when you started your job. That’s the form that tells your employer how much to withhold in taxes on your paycheck. On the top of the W-4 was a worksheet where you filled out how many people you claimed as dependents, lived in your household. That number gave you the total number of allowances to list on the W-4, which helped keep you from over- or underpaying tax throughout the year.
Since the W-4 was based on the number of personal exemptions, you’ll probably have to fill out a new W-4. That’s easier said than done, however, because the IRS has not yet released the new W-4.
Walser doesn’t expect the new W-4 to be released until sometime in February, so check with your company to make sure you’re on track.