Military Spouse Need to Know: 10 Major Tax Changes for 2018 Tax Returns
Article by Erin Kidd, More Than a Mrs. Contributor
Even though the government is still shutdown as of this writing, tax season will roll on with no delay. The IRS has announced that tax season will open on January 28th, 2019 and that they will issue refunds, despite a government shutdown. Currently, many forms are still in draft mode and only once forms are finalized may taxpayers file their tax returns.
The Tax Cuts and Jobs Act, passed at the end of 2017 brought the most significant tax changes at the Federal level since 1986. Every taxpayer will likely see some change to their tax return.
In addition, a major change that will impact military spouses is the newly passed Veterans Benefits and Transition Act of 2018, which further expanded on the Military Spouse Residency Relief Act to and amends the SCRA to add the following language:
“For any taxable year of the marriage, the spouse of a servicemember may elect to use the same residence for purposes of taxation as the servicemember regardless of the date on which the marriage of the spouse and the servicemember occurred.
(b) Applicability.—The amendments made by subsection (a) shall apply with respect to any return of State or local income tax filed for any taxable year beginning with the taxable year that includes the date of the enactment of this Act.”
Signed into law on 12/31/18, it remains to be seen how the states will respond to the act and the best method of implementation.
Regardless of the state tax implications, here are 10 things that will be different on the Federal Tax Return this year.
- Only one type of form
In past years there have been three forms that individuals could use to file their taxes: Form 1040, Form 1040A and Form 1040EZ. Tax returns filed for 2018 will now only have a new Form 1040 to use to report their income.
- The Form 1040
Altered to deliver on the “postcard” tax return promise, the Form 1040 has essentially been chopped into pieces. The “front” has places for your personal information and dependents and your signature. The back has abbreviated entries for income, deducations, and credits.
- Schedules 1 – 6
These schedules take sections of the tax return and pull out those items onto another sheet of paper. The special schedules are for items such as Additional Income and Adjustments to Income (the middle section of the former Form 1040), Other Payments and Refundable Credits, Tax, Nonrefundable Credits, and a Third Party Designee. You may only have one or two of these extra schedules to prepare when you work on your tax return.
- Increased Standard Deduction
The standard deduction for married couples filing jointly increased to $24,000. A significant jump from the $12,400 level from prior years. If you usually take the standard deduction, this could be a great benefit to you.
- Limit on State and Local Tax Deduction
If your family itemized on your tax return and used state and local taxes as deduction, you may be missing out. The deduction for state and local taxes has been limited to $10,000, which includes real estate taxes, personal property taxes, and state and local income taxes. This could be a significant decrease in itemized deductions and may lead to considering not itemizing at all.
- Medical Expense Deduction Threshold Increased
Medical expenses must now exceed 10% of your adjusted gross income before the first dollar can be deducted. For the past several years the threshold had been lowered to 7.5%. This could have a significant impact for those facing catastrophic or serious illness.
- No Longer Deductible: Miscellaneous Itemized Deductions subject to 2%
For many years, unreimbursed employee business expenses, investment fees, tax prep fees, union dues, and safety deposit box expense were eligible for itemized deduction, to the extent they exceed 2% of the taxpayer’s adjusted gross income. Those expenses are no longer deductible.
- No More Personal Exemptions
Prior to tax year 2018, taxpayers were allowed personal exemptions for each person on the tax return. For 2017, that amount was $4,050 each for taxpayer, spouse and each dependent. These exemptions effectively allowed that amount to be “tax-free”. It removed the amount for each person from the calculation of taxable income.
- Increased Child Tax Credit
For qualifying children, the credit has increased to $2,000. Credits are fantastic, because they are a dollar for dollar reduction of your tax bill. This credit is also partially refundable. Up to $1,400 of this credit can be refunded to taxpayers who qualify.
- Other Dependent Credit
Taxpayers who provide support for qualifying relatives may be eligible to claim a $500 credit for each of them. This is especially helpful for those that care for parents or children over the age of 17 who no longer qualify for the Child Tax Credit.
Also, for those that are self-employed, while expenses paid for meals that have a business purposes are still deductible at 50% of the expense, entertainment expenses are no longer deductible, at all.
If you use a tax preparer or military installation VITA site, be prepared to answer even more questions if you qualify to receive the following credits: Earned Income Tax Credit, Child Tax Credit, Other Dependent Credit, American Opportunity Credit or if you qualify to file as Head of Household. The IRS has implemented more requirements for due diligence on preparers.
Each tax situation is different and you should do your own research or consult with a professional. My answer to almost any tax question is usually “It depends!”.
Erin Kidd is an Enrolled Agent, Accredited Financial Counselor ®, and has her Master’s Degree in Business Administration. You can find her on Twitter, Instagram, Facebook and Linkedin or at www.taxladyerin.com. She’d love to connect to talk about financial literacy, taxes, entrepreneurship, intrapreneurship and stuff that makes us laugh!