The New Tax Law: Standard Deduction and Personal Exemption
14 February 2018 - 04:51AM
Dow Jones News
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-- Personal exemption repealed: The repeal of the personal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 laura.saunders@wsj.com
(END) Dow Jones Newswires
February 13, 2018 12:36 ET (17:36 GMT)
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