Learn about the “new tax brackets” and how you can more effectively apply changes in the tax law that occurred in the New Tax Cuts & Jobs Act on your 2018 tax return…
In this discussion we will look at a couple who filed MFJ in 2017 and received a refund of $4,300 on their Federal return and a refund of $800 on their State (Georgia) return.
We will now look at and provide 2018 projections under the new tax law.
Keep in mind this is a real world scenario, however this is an example only as all tax filings are unique and will vary from person to person.
Sch. C ($4,000) loss
AGI $70,711 (line 37 form 1040)
Standard Deduction ($24,000) example 1 new law or Itemized Deduction ($29,000) example 2
Taxable Income: $46,711 if using the new Standard Deduction, or $41,711 if Itemizing at same amount ($29,000) as on their 2017 tax return
2018 tax brackets and income ranges for Married taxpayers Filing Jointly and Surviving Spouses
Tax $5,224 or 4,624
Less: Lifetime Learning Credit $2,000
Total Tax: $3,224 or $2,624
Less: Dep. Tax Credit $1,000
Total Tax: example 1 $2,224 or example 2 $1,624
Less: Withholding $2,028 (same as 2017 tax year)
Owe ($196) example 1 or Refund $404 example 2
Remember 2017 Refund was $4,300!
If dependents were under age 17 (the 2 dependents were both over age 17 in the above example) Child tax credit (would replace Dependent Tax Credit) of $2,000 per child would reduce their taxable income to zero with a portion of the $2,800 refundable credit coming into play based on their filing parameters.
Total Tax $3,224 minus $4,000 = $776 tax credit allowed, or
Total Tax $2,624 minus $4,000 = $1,376 tax credit allowed
$776 refundable credit plus withholding of $2,028 means refund would go to $2,804 in example 1
$1,376 refundable credit plus withholding of $2,028 means refund would go to $3,404 in example 2—still about a $900 dollar difference from their 2017 tax refund of $4,300 when itemizing where their dependents were over age 17.
With the new 2% itemized deductions now a thing of the past and limitations on state and local taxes that schedule A amount could be lower depending on your individual circumstances.
That lower amount could have a negative effect on your Federal and State Income Tax filings.
State (Georgia) Federal AGI 70,711
Enter the standard deduction that corresponds to your marital status. n Single/Head of Household.............$2,300 n Married Filing Separate................. $1,500 n Married Filing Joint........................$3,000 n Additional Deduction.....................$1,300
Less: Standard Deduction ($3,000) 2018 tax year and (proposed $6,000) 2019 tax year or ($29,000 from Federal Itemized Deductions) $67,711 example 1 or 41,711 example 2
Less: Exemptions ($13,400 MFJ--$3,000 x 2 for husband and wife and $3,700 x 2 for dependents) $54,311 or $28,311 @ roughly 5.2% tax rate
$2,824 in taxes owed example 1 or $1,472 in taxes owed example 2
Less: Withholding $2,044
Owe ($780) Example 1 Standard Deduction, or
Refund $572 Example 2 using Itemized Deductions—2017 refund was $800 in Georgia when itemizing
Here's how the new 2018 income tax brackets and increased standard deductions break down for every type of taxpayer. You can use the above format to get a heads up on where you will fall in 2018 on your federal return by plugging in the appropriate numbers.
If you live in the state of Georgia you can also use the above format to get a peek and see if you will owe or get a refund on your state taxes.
For those of you with no state income tax—great, you now have the ability to know your federal outlook or you now have a blueprint that can at least give you an estimate of what you might owe.
For those in other states you may have to rely on your tax professional or do additional research if you are comfortable working with numbers.
All the best as your lower tax bracket leads you toward greater success...