Volunteer Tip of the Week: How the Tax Cuts and Jobs Act (TCJA) affects VITA?

Standard Deduction Amount Increased

For 2018, the standard deduction amount has been increased for all filers, and the amounts are as follows.

  • Single or Married Filing Separately—$12,000.
  • Married Filing Jointly or Qualifying Widow(er)—$24,000.
  • Head of Household—$18,000.

Due to the increase in the standard deduction and reduced usage of itemized deductions, taxpayer may want to consider filing a new Form W-4.

Child Tax Credit & Additional Child Tax Credit

For 2018, each child must have a Social Security number issued before the due date of 2018 return (including extensions) to be claimed as a qualifying child for the child tax credit or additional child tax credit. The maximum credit increased to $2,000 per qualifying child. The maximum additional child tax credit increased to $1,400. In addition, the income threshold at which the credit begins to phase out is increased to $200,000 ($400,000 if married filing jointly).

Credit For Other Dependents

A new credit of up to $500 may be available for each dependent who does not qualify for the child tax credit. In addition, the maximum income threshold at which the credit begins to phase out is increased to $200,000 ($400,000 if married filing jointly). If the dependent child has an ITIN, but not an SSN, issued before the due date of 2018 return (including extensions), taxpayer may be able to claim the new credit for other dependents for that child.

Deduction for Personal Exemption Eliminated

For 2018, personal exemption deduction for taxpayer, spouse, or dependents are eliminated.

Changes to Itemized Deductions

For 2018, the following changes have been made to itemized deductions that can be claimed on Schedule A.

  • Itemized deductions are no longer limited if the adjusted gross income is over a certain amount.
  • Part of medical and dental expenses that is more than 7.5 percent of adjusted gross income can be deducted.
  • Deduction of state and local income, sales, and property taxes is limited to a combined, total deduction of $10,000 ($5,000 if married filing separately).
  • Taxpayers can no longer deduct job-related expenses or other miscellaneous itemized deductions that were subject to the 2 percent of AGI floor. Certain other items on Schedule A, such as gambling losses are still deductible.
  • For indebtedness incurred after December 15, 2017, the deduction for home mortgage interest is limited to interest on up to $750,000 of home acquisition indebtedness. This new limit doesn’t apply if taxpayer had a binding contract to close on a home after December 15, 2017, and closed on or before April 1, 2018, and the prior limit would apply.
  • Taxpayers can no longer deduct interest on home equity indebtedness, which means indebtedness not incurred for the purpose of buying, building, or substantially improving the qualified residence secured by the indebtedness.
  • The limit on charitable contributions of cash has increased from 50 percent to 60 percent of AGI (adjusted gross income).