1st Quarter 2018

What the New Tax Law Means for Your Savings

The new tax law reduces tax rates for most workers and nearly doubles the standard deduction. It also expands some tax breaks and eliminates some others. Here's how to make the most of the changes.

Fewer people will itemize their deductions. The standard deduction nearly doubles in 2018 — rising to $12,000 for single filers, $18,000 for head-of-household filers, and $24,000 for married couples filing jointly. If you're age 65 or older, you'll also get an extra standard deduction of $1,600 if single or $2,600 for a married couple in which both husband and wife are at least 65. Many taxpayers who itemized in the past will be better off claiming the standard deduction instead. If you don't itemize, you won't be able to deduct your charitable contributions, but there are other ways to benefit from your generosity. See Make a Charitable Plan.

New 529 rules. A 529 college-savings plan has been a great way to save for college — you can withdraw the money tax-free for college tuition and fees, room and board, and books. The new law now also lets you withdraw up to $10,000 per year per student tax-free to pay tuition for kindergarten through 12th grade.

Limit on deducting state and local taxes. If you do itemize, you'll only be able to deduct up to $10,000 in state and local taxes per year. The cap applies to the combination of property taxes, state and local income taxes, and sales taxes. New 529 rules. A 529 college-savings plan has been a great way to save for college - you can withdraw the money tax-free for college tuition and fees, room and board, and books. The new law now also lets you withdraw up to $10,000 per year per student tax-free to pay tuition for kindergarten through 12th grade.

New options for children with special needs. The new law lets you roll over up to $15,000 each year from a 529 to an ABLE account if you have a child with special needs. Beneficiaries of any age can have an ABLE account if they developed a qualifying disability before age 26. Thirty states plus the District of Columbia now offer ABLE accounts, and more states plan to introduce new plans soon. The money in the account can be used tax-free for a wide range of expenses to help the disabled person, and the money in the account doesn't affect eligibility for most government disability benefits. See www.ablenrc.org for more information about ABLE plans.

Lower deduction for medical expenses. In recent years, medical expenses were deductible only to the extent your out-of-pocket costs exceeded 10 percent of your adjusted gross income. That set the bar so high that relatively few taxpayers could deduct their medical expenses. The new law lowers that threshold to 7.5 percent of your adjusted gross income for 2017 and 2018.

For more information about the changes, see the Tax Reform section of www.irs.gov.

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