Whether you dread the thought of 2018 coming to an end or you are counting down the days, the 2018 tax season is rapidly approaching. If you look back to January 1, 2018, you may remember that the 2018 Tax Reform Act officially took effect this year. Although the Act did not impact your 2017 taxes, it could affect your 2018 taxes.
One of the major differences that you will see play a role in the upcoming tax season is the Act’s changes to alimony and separate maintenance payments. With the end of the year right around the corner be sure that your divorce or separation is finalized by December 31, 2018. Any divorce or separation not finalized by the end of the year will not be eligible for deductions for alimony or separate maintenance payments. For those of you who are already divorced, separated, or managed to meet this deadline, you remain eligible for deductions.
Beginning in tax year 2019, receiving alimony or separate maintenance payments will not be included in your gross income. Alimony and separate maintenance payments will no longer be accounted for in the tax system. These payments will not be taxable to the recipient or deductible to the payor.
Another game changer this tax season is the Child Tax Credit. Thanks to this new tax reform, if you have a child under the age of 17, you may be receiving a bigger tax credit this year. The child tax credit has doubled from $1,000 in the previous years, to the current amount of $2,000. A taxpayer who is entitled to this higher tax credit could ultimately keep a little extra money in his/her pocket and reduce the amount that has to be paid in tax liability. In terms of refundable tax credits, the amount has increased from $1,100 to $1,400. If you care for a dependent, who is not a child, the Act allows for a new, nonrefundable, credit. The new nonrefundable credit allows you to collect $500 for each dependent. Previously, if an individual had a gross income of $110,000, they were no longer eligible for the credit. The new limit has been increased to $200,000 single and $400,000 married, filing joint.
As you complete your taxes this season we advise that you are aware that the standard deduction has nearly doubled. During the 2017 tax season the standard deduction for single/married filing separately was $6,350. The 2018 standard deduction will be $12,000. For married filing jointly, the 2017 standard deduction was $12,700; for tax year 2018 it will be $24,000.
