TAX CHANGES
The new federal tax law promises big changes for many taxpayers
Q: What changes in the new tax law will most impact the average Oklahoman?
A: The “marriage penalty” is now mostly gone, personal exemptions are gone, family tax credits increased, casualty loss deductions are now limited, state and local taxes are now capped for deductions and, starting in 2019, there's no longer a penalty for not carrying health insurance under the individual mandate of the Affordable Care Act.
Q: What do you mean by “mostly” regarding the marriage penalty?
A: The married filing jointly income thresholds are now double the single thresholds for all but the two highest tax brackets. Previously, the thresholds were not equal. So for most filers, the penalty is gone. The exception now is the two top brackets, where combined spousal income is greater than $400,000.
Q: Do the increased family tax credits offset the loss of personal exemptions?
A: Yes. For most taxpayers with children under 17, the credits more than make up for the loss of exemptions. The personal exemption for 2018 was $4,050 per person. So, though a family of five no longer has $20,250 in exemptions (4,050 times five), the loss mostly will be offset by the child tax credit, which doubled from $1,000 to $2,000. If the family tax credit is larger than the tax you owe, you may receive a refund of up to $1,400 of the $2,000 credit per child. There's also a new $500 credit for other dependents.
Q: Can you explain the new credit for other dependents?
A: Dependents who can't be claimed for the child tax credit may qualify for this non-refundable tax credit of up to $500 including children, ages 17 to 23, who live with you for more than half the year. There's also a long list of non-child relatives who may qualify for the including dependent grandchildren, tax credit, siblings, grandparents, step-siblings, nieces, parents, nephews, uncles, aunts and in-laws. All must be U.S. citizens, U.S. nationals or U.S. residents.
Q: Since Oklahoma has a lot of natural disasters, will taxpayers take a big hit with the limits now placed on casualty loss deductions?
A: Big. As of January 2018 the only way to claim a casualty loss is if a federally declared disaster is declared by the president. If your home, household items and vehicles are lost in a storm, fire, etc., and the president doesn't declare that area a disaster area, you no longer can claim the losses on your return.
Q: What exactly does this cap on state and local taxes mean?
A: If you itemize, a big portion of your deductions are state income taxes and property taxes. Prior to the new tax laws, there was no limit on the amount that could be deducted. Now, if your state income and property taxes exceed $10,000, you lose the amount over $10,000 as a deduction. This can be a sizable loss of deductions for many.
Q: Has the penalty for not having health insurance gone away?
A: Yes, the Individual mandate, as of January 2019, has been repealed. So, there no longer will be a penalty for not having health insurance.
Q: What other big changes are you seeing going forward?
A: The tax forms have changed. Prior to this tax season, the 1040 form was two pages. Now, it's two half pages with potentially six accompanying schedules to explain the new “shorter” tax form. So much for simplification! The IRS is also requiring more checking or due diligence for those who file as Head of Household. So, more questions will be asked and documentation required.