By Laura Saunders
For many taxpayers, the tax overhaul's most sweeping changes are the near-doubling of the standard deduction and repeal of the personal exemption.
The standard deduction is the amount filers can subtract from income if they don't break out deductions for mortgage interest, charitable contributions, state and local taxes and other items on Schedule A. Listing these deductions is called "itemizing."
The tax overhaul raises the 2018 standard deduction to $24,000 per married couple and $12,000 for singles, compared with $13,000 and $6,500, respectively, under prior law for 2018.
As a result, the number of filers who itemize for 2018 is expected to drop by more than half -- from nearly 47 million to about 19 million out of about 150 million tax returns, according to the Tax Policy Center.
Switching to the standard deduction will simplify the returns of more than 25 million filers. It will also lighten the IRS's burden, because the agency will have fewer deductions to monitor.
But the change also means these filers won't get a specific benefit for having mortgage interest or making charitable donations. That could affect future decisions about donations or owning a home.
-- Personal exemption repealed: The repeal of the personal exemption is also a landmark shift. In prior law, this provision was a subtraction from income for each person included on a tax return -- typically the members of a family. The 2018 amount was set to be $4,150 per person, and it phased out for higher earners.
The personal exemption was also integral to figuring an employee's withholding from pay.
The interaction of the new standard deduction, repeal of the personal exemption and expansion of the child credit is complex, and the effects will vary widely compared with prior law. This is in part because the personal exemption was a deduction, while the child credit that is a partial replacement is a dollar-for-dollar offset of taxes.
Many families with children will come out ahead under the new law for 2018, especially if they took the standard deduction in the past. But some others won't -- especially if their children are age 17 or older, according to Roberton Williams of the Tax Policy Center.
Write to Laura Saunders at email@example.com
(END) Dow Jones Newswires
February 13, 2018 12:36 ET (17:36 GMT)
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