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10 important things to know about the new tax law, part 1

It’s only a few months until tax season. With the recent overhaul of the United States tax law passed by the Trump administration, taxes may seem a bit more confusing this year. Although the overhaul’s most significant changes won’t affect your 2017 returns, there are still several important things to learn about the new tax code. There will be many changes to take into consideration, and making a mistake on your return could mean big consequences.

In this two-part series on our blog, we will discuss 10 of the most important things that you should know about the new tax overhaul.

1. New tax brackets

Many taxpayers will fall into different tax brackets next year. The amount of taxes owed by each bracket has been significantly reduced, meaning your 2018 taxes will probably decrease. Once the withholding values have been adjusted in January of February, you will probably have a greater amount of take-home pay.

2. Increased standard deduction

The tax law has some major changes in store for deductions. In 2018, the standard deduction will nearly double. The standard deduction for single filers will increase from $6,350 to $12,000. For joint filers, it will go from $12,700 to $24,000. This probably means that fewer taxpayers will choose to itemize, since many people’s itemized deductions will not exceed their standard deductions.

3. Vanishing deductions

A few deductions are disappearing entirely. Tax preparation fees, moving expenses, unreimbursed employee expenses, home equity loans and casualty or theft losses will all disappear. The alimony deduction will remain in place for couples who get divorced through 2018, but will disappear for couples who divorce after 2019.

4. Exemptions

Taxpayers will not be able to claim the $4,050 personal exemption on their 2018 tax returns. The exemption will vanish, only to appear again in 2026. To make up for this loss, the Child Tax Credit will increase to $2,000 for each qualifying child, and non-child dependents will qualify for a $500 credit.

5. Capping local and state deductions

Under the new tax law, state and local tax deductions will be preserved for taxpayers who itemize, but they will be drastically capped. From 2018 to 20205, there will be a cap of $10,000 on state and local deductions as well as mortgage deductions. The deduction amount for local and state taxes is currently unlimited.

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