The Tax Cuts and Jobs Act (TCJA) gives bigger break for most individuals and doubles the standard deduction and child tax credit.

Most individual taxpayers, although not all, should benefit from the TCJA, which cuts income tax rates, nearly doubles the standard deduction and eliminates personal exemptions. For most individuals, there's not a lot of planning and changes you can do. If you have a larger family, you could be affected because the personal exemption is going away.

The IRS continues to warn taxpayers that they may be at risk for receiving a surprise tax bill due to the TCJA. The IRS noted that while the TCJA lowered tax rates for most taxpayers, some taxpayers may have too little tax withheld from their pay because it also nearly doubled the standard deduction and limited or discontinued many deductions. (IR-2018-220)

With a higher standard deduction, a growing majority of Americans are expected to simply take the standard deduction and not itemize their tax returns. That will simplify returns for many taxpayers, although it could discourage some people from giving as much to charity or buying real estate. Those who take the standard deduction don't itemize items such as mortgage interest payments or many charitable contributions.

Even for those who do itemize, the new law limits the deduction on mortgage interest to the first $750,000 of the loan (for homes purchased after mid-December 2017), and interest on home equity lines of credit can no longer be deducted. Current mortgage-holders aren't affected, however, and Congress backed away from tax reform proposal to phase out mortgage deductions.

Taxpayers can deduct no more than $10,000 in state and local taxes, but the new law expands the deduction for medical expenses. The Act also repeals the Obamacare tax on those without health insurance in 2019.

The law doubled the maximum child tax credit to $2,000 and raised the income limits to claim the credit. A child must also have a valid Social Security number before the due date of the tax return, including extensions. The second credit of up to $500 per dependent is aimed at taxpayers supporting older children and other relatives who don’t qualify for the child tax credit.

The TCJA suspended personal exemptions for 2018–2025, but roughly doubled inflation-adjusted standard deduction amounts. For 2019, the amounts are:

  • $24,400 for married joint filers,
  • $12,200 for single filers,
  • $18,350 for heads of households and
  • $12,200 for married couples filing separately.

For an individual who can be claimed as a dependent on another’s return, the standard deduction is $1,100, or $350 plus the individual’s earned income, whichever is greater.

As far as planning goes on the individual side, drastic measures might be a little premature because a lot of these changes are scheduled to sunset in 2025, and unless another law comes around, it will revert to the way it was before.

However, time is running out to remedy any shortfall through increased withholding or estimated tax payments.

Due to tax reform, many employees’ withholding decreased in early 2018, giving them more money in their paychecks this year. As a result, many may receive a smaller refund or even owe tax, especially if they did not adjust their withholding after the withholding tables changed.

The IRS has updated its Get Ready page with steps to take now for the 2019 tax filing season. 

Download the 2018-19 Tax Planning Guide

LBMC tax tips are provided as an informational and educational service for clients and friends of the firm. The communication is high-level and should not be considered as legal or tax advice to take any specific action. Individuals should consult with their personal tax or legal advisors before making any tax or legal-related decisions. In addition, the information and data presented are based on sources believed to be reliable, but we do not guarantee their accuracy or completeness. The information is current as of the date indicated and is subject to change without notice.