Last winter Congress passed the Tax Cuts and Jobs Act (TCJA) in an effort to lower income taxes for virtually all taxpayers. As a result, most Americans are expecting larger refunds this spring. Supporters of the bill believe this will help improve the economy, while others believe it is fiscally irresponsible. Whatever your belief is, it is certainly changing the way tax returns are prepared and enhancing certain credits.
One of the major changes with the Tax Cuts and Jobs Act, is that the deduction for personal exemptions has been suspended. This is often a significant benefit for taxpayers and families with children. The new tax code however, is increasing the child tax credit up to $2,000 per child under Code Section 24(h)(2). Under pre-Act law, the child tax credit provided taxpayers a benefit up to $1,000 per child. The pre-Act law also phased out taxpayers by $50 for each $1,000 of adjusted gross income (AGI) over $75,000 for single filers, $110,000 for married filing joint filers, and $55,000 for married individuals filing separately. These phase out thresholds often kept many taxpayers from receiving this credit. Thankfully, under the new Tax Cuts and Jobs Act, the phase out thresholds have increased to $400,000 for married taxpayers filing jointly, and $200,000 for all other taxpayers. These child tax credit modifications will certainly benefit more taxpayers with qualifying children.
Another benefit of the Tax Cuts and Jobs Act, to help combat the suspension of personal exemptions, is the non-child dependent credit. Under Code Section 24(h)(4) there will be a partial credit worth up to $500 for each dependent of the taxpayer, that is other than a qualifying child. This will likely help taxpayers who have been providing qualifying relatives more than half of their annual support.
These are two small changes included in the Tax Cuts and Jobs Act that could have the potential to reduce your 2018 taxes. The TCJA will certainly impact every taxpayer’s 2018 tax return in one way or another.
If you would like to review what implications the TCJA could have on your 2018 tax return, PFBF CPAs is happy to assist you with your questions. Please don’t hesitate to stop by one of our offices: 259 Front Street, Bath or 46 First Park Drive Oakland.
Nick Deblois is a Staff Accountant at One River CPAs. He works closely with other senior staff members of the firm, honing his talents regarding tax and accounting matters. He can be reached at 207-873-1603.