IRS tax reform updates under the TCJA: Here’s what to expect

March 23, 2018 : Alison Flores

Editor’s Note: We’ll see new forms, updated forms, and some new processes as tax reform changes are implemented by the IRS.

The IRS is working on implementing changes from the Tax Cuts and Jobs Act (TCJA). Here are some of the major IRS tax reform changes you can expect.

 

New Business Deduction Forms

One of the most exciting IRS TCJA changes is the anticipation of a new form, schedule or worksheet for taxpayers to calculate the qualified business income (QBI) deduction. Self-employed taxpayers, partners, and S corporation shareholders will use this form to claim a QBI deduction on their tax returns.

If you’re in this group, stay tuned for IRS guidance expected to come out during 2018 and work with your tax preparer to determine if you should make any changes to your estimated tax payments.

 

Updated IRS Tax Withholding Forms

Under the TCJA, most people will pay lower taxes, but some will pay higher taxes. This TCJA change means employers are withholding federal income taxes from paychecks at lower rates than last year.

Employees use Form W-4 to tell their employers how much to withhold from their paycheck. The IRS updated Form W-4 in 2018 to reflect the TCJA changes, but you are not required to submit a new one.

However, tax preparers recommend you use a withholding calculator to determine if you need to give your employer an updated Form W-4. H&R Block’s calculator will help you estimate your tax refund and tax reform impact. The IRS withholding calculator is another online option. Your tax preparer can also help you determine if you need to give your employer an updated Form W-4.

You are most likely to need to increase your withholding if your children are age 17 or older, you usually itemized deductions in the past, or you don’t have any children or other dependents.

 

New IRS Processes

When you file your 2018 taxes next year, the tax filing process will feel familiar. But you’ll notice some TCJA changes.

One IRS change is that you won’t claim a dependent exemption for your children or other dependents or a personal exemption for yourself or spouse. But you’ll still need all of the information about your dependents, because you may be able to claim a credit for them instead.

 

IRS Tax Reform Changes for Taxpayers Who Itemize Deductions on Schedule A

A combination of TCJA changes means that fewer taxpayers are expected to itemize deductions in the future. If you currently itemize deductions, continue to keep track of your itemized expenses so you can figure out if the standard deduction or itemized deduction is better for you.

Here are some changes for itemized deductions:

  • Your total deduction for state and local taxes, including income or sales, real property, and personal property taxes, is limited to $10,000 ($5,000 if married filing separately).
  • Your interest payments on a home equity loan might not be deductible.
  • You can no longer deduct employee business expenses.
  • In 2018, you can deduct medical expenses to the extent they exceed 7.5% of AGI.

If you’re a taxpayer who has itemized deductions in the past, you might find it more advantageous overall to claim a standard deduction.  Depending on your state, you might need to consider how itemizing or claiming a standard deduction on your federal and state returns impacts your overall tax liability.

For more information about Schedule A filing, click here.

 

New IRS Tax Reform Resources

The IRS dedicated a page on its website to Tax Reform. Visit the page for new developments, frequently asked questions, publications and IRS guidance on the tax reform changes.

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Alison Flores

Alison Flores

The Tax Institute, H&R Block

Alison Flores, JD, is a principal tax research analyst at The Tax Institute. Alison specializes in the Patient Protection and Affordable Care Act, same-sex marriage, tax preparer regulation, and individual income tax issues.