At the end of 2017, the government signed into law the Tax Cuts and Jobs Act of 2017. This ushered in changes that will probably significantly affect your 2018 tax return. With the next filing season right around the corner, you might be wondering what your tax liability will look like come April.
It is important to know how these changes to the tax law will impact your return. Here is a brief overview of some of the major changes that may affect your tax bill.
Alimony deduction
If you are divorced and have been paying alimony, you have probably been taking the above-the-line deduction for the total you paid during the year. However, if you were receiving alimony, you had to include it in your taxable income.
Since December 31, 2018, alimony is no longer deductible on the payer’s tax return and not includable on the recipient’s return. Furthermore, if you divorce again in the future, you may face tougher negotiations in terms of the divorce settlement. In addition, divorced couples might face even higher tax bills this year.
Cuts in itemized deductions
While you probably already know about the $10,000 limitation for the state and local income tax deduction as well as the limitation on property and real estate taxes, you may not have heard much about the tax bill’s effects on other itemized deductions.
For example, in prior years, you could take miscellaneous itemized deductions if they amounted to more than two percent of your adjusted gross income (AGI). In general, these deductions probably included the fees you paid for investment management, tax preparation and possibly even unreimbursed employee expenses.
Unfortunately, these deductions that were subject to the two percent AGI limitation were eliminated starting in 2018 through 2025.
Alternative minimum tax
On a more positive note, due to the itemized deduction limitations described above, many people who were once subject to alternative minimum tax (AMT) may not have to pay it anymore. In the past, AMT was generally triggered when a taxpayer reached a certain income level that resulted in the limitation or full elimination of available itemized deductions.
Now that these limits have been imposed on everyone, fewer people will end up owing AMT. In addition, the levels of income that previously triggered AMT have been increased.
Even though you may largely depend on your accountant to stay abreast of changes in tax laws, the responsibility for your tax return and accompanying liabilities falls directly on you. If you have run into a legal issue with your taxes, keep in mind that you still have rights and options.