For many Eastern Shore residents, the new tax code may simplify how you pay your taxes and lower your tax payment. That’s because the new higher standard deduction may well take away the need to itemize deductions, as well as saving you a lot of paperwork and tax accountant fees. Experts estimate that as many as two-thirds of taxpayers who now itemize will now instead take the standard deduction. If you do need to itemize because of high medical expenses, high state and local taxes, or big mortgage interest payments, then your tax payments may very well rise because of new limits on some deductions. Personal exemptions have also been cut, meaning more of your income is exposed to taxes.
Here’s how it works out. The standard deduction has been doubled. For 2018 it is $12,000 for a single filer; $18,000 for a single head of household; and $24,000 for a couple filing jointly. In addition, if you’re over 65, you get an additional deduction of $1600 for a single filer or $2600 for a couple filing jointly. That means a single head of household earning $30,000 a year who takes the standard deduction would pay taxes only on $12,000 of income, and would likely get a tax credit for children (see below) to offset some or all of that. A couple with $50,000 in income who also took the standard deduction would pay taxes only on $26,000 of income. If they were seniors, they would pay taxes only on $23,400 of income.
The child tax credit (which directly reduces your tax payments) has also been doubled to $2000 per child. There are some restrictions: the child must live with you, be less than 17 at the end of the tax year, and a few others. But for most families, two children means $4000 in tax credits; four children would mean $8000.
For those who need to itemize—and generally for taxpayers with higher incomes earned through salaried employment and or with expensive houses—the new tax code is less friendly. State and local income taxes and property taxes used to be fully deductible from income; now this deduction is capped at $10,000. Mortgage interest on your existing home is also fully deductible, but for any new mortgage, only interest on the first $750,000 is deductible. Interest on home equity loans is no longer deductible. Medical expenses in excess of 7.5% of your adjusted gross income are deductible in 2018, but for 2019 only those expenses in excess of 10% will be allowed. And as mentioned above, the personal exemption (which was a deduction of $4000 per person) has been done away with.
These are the basics, and of course things can be more complicated. But it’s worth checking out how these new rules apply to your situation.
Title image: Sunset at Eastern Neck National Wildlife Refuge, Kent Co. Photo: Jan Plotczyk