Tax Prep & Planning

The New Standard Deduction and Removal of Exemptions – It’s Impact on YOU

The new tax law, Tax Cuts and Jobs Act (TCJA), has nearly doubled the standard deduction and eliminated exemptions claimed for you and your dependents. How these changes impact you depends on your specific tax situation, however. While the higher standard deduction and removal of exemptions are two major changes in tax reform, they alone won’t determine whether you’ll pay more or less taxes.

Standard Deduction

Each year, you can pick the better option based on your situation – standard or itemized deductions.

The standard deduction is generally a fixed dollar amount (adjusted each year for inflation) that reduces your taxable income. Here are details:

  • The value of the deduction depends mostly on your filing status.
  • You should claim the standard deduction typically only if your itemized deductions are less than the standard deduction. (Itemized deductions include expenses such as mortgage interest, state and local taxes, and medical expenses.)
  • TCJA nearly doubles the existing standard deduction amounts for tax years 2018 through 2025. Because TCJA has changed so many tax provisions, you may or may not benefit from the higher standard deduction. It depends on how you are affected by the other provisions of the tax bill.
  • The higher standard deduction means many taxpayers who previously itemized will now choose the standard deduction. If your itemized deductions are higher than the new standard deduction, you should continue to itemize.

Standard Deduction Pre-TCJA

Under the old law,, the standard deduction for 2018 would have been:

  • $13,000 – Joint Return or Surviving Spouse
  • $9,550 – Head of Household
  • $6,500 – Married Filing Separate or any other Single filer

Standard Deduction Post-TCJA

For years 2018 through 2025, the standard deduction has been increased to:

  • $24,000 for Married Filing Joint or Surviving Spouse
  • $18,000 for Head of Household
  • $12,000 for Married Filing Separate or any Single filer

*The additional standard deduction for the elderly and the blind is not changed.

Cost of Living Adjustments

TCJA also changed inflation adjustments for cost of living. Cost of living adjustments will likely increase at a more gradual rate under the new measure. (For further information on the new cost of living adjustment, please see the Bureau of Labor Statistics.)

Personal Exemptions

What is a Personal Exemption?

On the 2017 return, taxpayers can claim an exemption for themselves, their spouse, and their dependents (if eligible). Each exemption lowers taxable income by $4,050 under current (2017) law.

  • The TCJA has suspended all personal and dependent exemptions for tax years 2018-2025.
  • New tax provisions, including a higher standard deduction, may or may not make up for the removal of personal and dependent exemptions, as taxpayers’ situations vary.

Return Filing Requirements

Under the previous tax code, you were required to file a return if your income reached the amount of the standard deduction for your filing status, plus $4,050 (the personal exemption amount) or $8,100 if filing jointly. Under TCJA, you are required to file if your income exceeds the new increased standard deduction.

Where To Go For Help

If you wonder how you will keep up with your tax-filing obligations and want to make sure you’re taking the right deductions, remember that Block Advisor is here to help. Find an office nearest you now. Go ahead, focus on what you do best and let us put our expertise to work for you!

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