The Tax Cuts and Jobs Act that was passed in 2017 made dramatic changes that affect nearly every taxpayer in every stage of life. Understanding what the TCJA means in regard to the season that you are in is essential for financial planning. According to CPA Journal, there are nine major categories that the TCJA impacts:
- Marriage and Divorce
The TCJA reduces the “marriage penalty,” or the increased percentage of taxes that people who are married pay as compared to individuals who file as single. It also affects those who are divorced, as alimony payments from spouses divorced in 2018 or later are no longer deductible.
The dependency exemption for a child has been eliminated from 2018 through 2025 under the TCJA. The child tax credit, on the other hand, has been significantly bolstered. There is also a new credit of $500 for dependents other than a qualifying child.
Under the TCJA, a 529 plan can now be used for education savings. Up to $10,000 can be withdrawn tax-free from the plan each year to be used to pay for primary and secondary schooling. Funds can also be transferred to an ABLE account tax-free for individuals with disabilities.
If student loans are canceled due to death or disability, they are not treated as taxable cancellation of debt income under the act.
- Changing or Losing Jobs
If you have lost a job or are changing jobs, you can no longer deduct expenses such as resumes, travel, or other work-related expenses.
- Relocating Out of State
Under the TCJA, employers can no longer reimburse employees for moving expenses on a tax-free basis. There is also now a $10,000 maximum on the itemized deduction for property taxes, state income taxes, and sales tax.
The TCJA also changed the breakpoints for long term capital gains. The new breakpoints will be adjusted for inflation.
The act didn’t directly change rules pertaining to 401(k), 403(b), or IRAs. However, some large employers have increased their retirement contributions on behalf of employees as a result of the TCJA.
- Caring for the Elderly or Disabled
If you are caring for an elderly or disabled person, the TCJA has a few ramifications that pertain to you. While you can continue to deduct medical expenses made for aging parents (up to 10% AGI in 2019,) the higher standard deduction means that fewer families will choose an itemized deduction. In addition, the annual contribution cap for ABLE accounts has been temporarily increased
- Theft and Disaster
Under the TCJA, you cannot take itemized deductions for stolen or damaged property unless it is within a federally declared disaster zone.
Understanding how to TCJA affects you in your current stage of life is imperative for maintaining your financial health and preparing for tax season. To read the full act, you can click here.
And as we always suggest, talk to your tax professional to understand how these changes impact your tax return.