Clients are asking me if it is true that their standard deduction almost doubled. Yes it did. Does that mean they will save a lot of money in taxes in 2018? Not as much as you might think.
For as long as I have been preparing tax returns, all taxpayers were entitled to a standard deduction based on how they are filing on their return. They were also entitled to an exemption for everyone on the return. The only exception to this is a dependent being claimed on their parent’s returns. On 2017 returns, a taxpayer filing Single is allowed a standard deduction of $6,250 and a personal exemption of $4,050. A couple filing Married Filing Joint gets a standard deduction of $12,700 and two personal exemptions totaling $8,100,
Under The Tax Cuts and Jobs Act (TCJA) passed in December of last year the standard deductions went up. For a Single filer, the new standard deduction will be $12,000 on 2018 tax returns. A married couple will see their standard deduction go up to $24,000. Sounds good doesn’t it? Almost doubled. But…
Personal exemptions are gone in 2018. So, a Single taxpayer will not get the $4,050 exemption nor will the married couple get the $8.100 they get in 2017. They will still come out ahead but not like they think. Single filers will pay tax on $1,700 less not the $5,750 it sound like on the news. For Married Filing Joint taxpayers, the new changes will mean they will pay tax on $3,200 not the $11,300 they think. Sorry to be the bearer of bad news.
I’ll cover changes in personal exemptions for dependents in another post. That will be fun---not.