Ask Chuck: How Will the New Tax Bill Affect My Finances?
I know there is a new tax bill, but I don’t know how it will affect filing this year. For someone who isn’t very familiar with all the ins and outs of the tax code (who is?), and just wants to be honest and receive the right deductions, it’s a little overwhelming to try and understand. Can you provide some insight? Anything I need to watch out for?
Rendering to Caesar
Dear Rendering to Caesar,
When The Tax Cuts and Jobs Act of 2017 was signed into law back in December, millions started asking and wondering how it would personally affect them. Only a couple changes might impact the 2017 filings you make this year. But, several changes will definitely affect future filings. I will only address those changes that affect personal income taxes.
The good news is that you have two extra days to file this year because they’re not due until Tuesday, April 17th and for the vast majority of taxpayers, we will owe less in 2018.
I don’t know anybody that delights in paying taxes. But, Paul’s advice to the Romans can help us with our attitude. Let every person be subject to the governing authorities. For there is no authority except from God, and those that exist have been instituted by God. Pay to all what is owed to them: taxes to whom taxes are owed, revenue to whom revenue is owed, respect to whom respect is owed, honor to whom honor is owed. (Romans 13:1,7)
So not only is it our duty before God to pay taxes but we should also honor those that use our taxes to accomplish important functions for the common good like military defense, roads, education and medical care.
Changes that affect 2017 Filings in 2018:
Medical expenses that total more than 7.5% of adjusted gross income (AGI) can be deducted for 2 years beginning January 1, 2017. For example, if your AGI is $50,000 you can deduct any medical expenses over $3,750 ($50,000 X 7.5%) if you itemize your deductions. This is retroactive, so you will see this change on your 2017 and 2018 returns. After this time, the 10% threshold returns.
The tax break for personal casualty losses is retroactive back to 2016 and was expanded to include losses in any federally declared disaster area. The primary place of residence must have been located in a 2016 disaster area and sustained a loss from a federally declared disaster. Typically claimed as an itemized deduction, the new law allows taxpayers to claim the loss if they claim the standard deduction with limitations.
Changes That Affect Future Filings:
The brackets remain the same but some tax rates drop and income thresholds have changed.
Standard deduction has nearly doubled: Singles $12,000. Joint filers $24,000.
Personal Exemption for you, your spouse and dependents has been eliminated.
State and local tax deduction, SALT, is capped at $10,000 for single or married itemizers. If married and filing separately, it drops to $5,000.
Child tax credit is now $2,000 for those under 17 and available in full for single parents earning up to $200,000 or married couples who earn up to $400,000. The amount refundable jumps from $1,100 to $1,400.
New temporary tax credit of $500 for non-child dependents: children over 17, elderly parents or adult children.
The individual mandate, that penalizes those without health care, was eliminated and goes into effect in 2019, affecting 2020 returns. However, taxpayers without coverage must claim a waiver or exemption (usually based on hardship) or face a penalty called the shared individual responsibility payment.
For the 2017 tax year, the penalty, payable in 2018, is equal to 2.5% of your adjusted gross income or $695 per adult and $347.50 per child, up to a maximum of $2,085, whichever is higher. According to the IRS, electronically filed tax returns will not be accepted “until the taxpayer indicates whether they had coverage, had an exemption or will make a shared responsibility payment.”
Mortgage interest deduction remains unchanged for current homeowners, but has been lowered on new mortgages for 1st or 2nd homes to the first $750,000 of their mortgage debt between December 31, 2017 and December 31, 2025. Interest deductions for home-equity loans are not accepted.
Those who file divorce or separation agreements after December 31, 2018 will no longer be able to deduct alimony payments and recipients will no longer treat alimony received as taxable income.
Only official national disasters qualify for deductions through 2025.
Deductions for bicycle commuting has been eliminated, as have tax preparation, investment fees, and unreimbursed job expenses. In addition, moving expenses for work are no longer deductible with possible exceptions for military members.
Money exempt from the estate tax has been doubled from the current $5.49 million for individuals and $10.98 million for married couples. Few people will be affected.
The annual gift exclusion increased from $14,000 to $15,000 per person per donor beginning in 2018.
It’s all God’s. He knows how hard we work to earn each dollar and how difficult this season is for many Americans. It is an opportunity to depend on Him and to prepare our taxes with a clear conscience. Proverbs 10:9 says, Whoever walks in integrity walks securely, but he who makes his ways crooked will be found out.
Remember how the scribes and chief priests desired to entrap Jesus. They posed a question for him that’s applicable to us. ‘Is it lawful for us to give tribute to Caesar, or not?’ But he perceived their craftiness, and said to them, ‘Show me a denarius. Whose likeness and inscription does it have?’ They said, ‘Caesar’s.’ He said to them, ‘Then render to Caesar the things that are Caesar’s, and to God the things that are God’s.’ (Luke 20:22-25)
Go and do likewise.
If you want to learn more about what the Bible says about all aspects of your finances, enroll in Crown’s online MoneyLife Personal Finance Study. Seven weeks could change your financial future!
Originally published on the Christian Post, February 16, 2018