view transcript

Tracy: We have to get to the big tax reform changes. Now, one of the big parts of the story were the adjustments to the tax rates, right? This was one of the biggest changes under the law, and it will impact how much money is being withheld from your paycheck. Again, more people probably saw more money, but let's walk through what we know right now. To start, right, five of the seven tax rates are lower?

Lisa: Right, exactly.

Tracy: That means bigger paychecks in 2018 and it potentially translates to as we said, smaller refunds this April or October if you indeed extend your return.

Lisa: Right, especially if you have a more involved tax return. The IRS, they adjusted withholding tables, but they adjusted them in relation to people who probably just took the standard deduction before. But if you have a more involved situation, dependents, you claim some of the deductions that we'll talk about later that were eliminated, like miscellaneous itemized deductions, then you definitely needed to adjust your W4.

Tracy: Right, and if you didn't, don't panic. Just wrap your head around it and then well certainly take care of it for 2019. But back to your 2018 return, which is what you should be preparing right now, they wanted originally, didn't they, to decrease the number of tax brackets. That didn't happen, so what we got were just lower rates in the seven that were existing.

Lisa: Yes. seven rate and they reduced five of the seven.

Tracy: Right, so people should understand that. Okay, so now let's move on to the big changes in these deductions. You had already alluded to the standard deduction, so more people probably than we've seen in a very long time will be taking the standard deduction this year because it doubled. Can you explain that to us?

Lisa: Right, yes, so for single tax payers it went up to $12,000. It was 6,350, and if you're married filing jointly, it doubled to $24,000 and it was $12,700, so almost double. Also, with certain eliminations of itemized deductions or the cap for instance if you're a homeowner, the cap on the amount of property taxes that you can now take. You may move over to standard deduction because your itemized deduction are not more than the standard.

Tracy: For people that really spend a lot of time on Schedule A and had a load of deductions, I think they're gonna see ... and this is why you and I talked about this before. I think everyone should take the time to do their returns themselves or at least try because then you really understand what's going on here. Otherwise, sometimes it sounds like you're learning a new language. But a bunch of the stuff on Schedule A is eliminated now, so I would think the form should look a little bit simpler?

Lisa: Well they did make a change to the tax forms, and so if you just claim standard deduction, it's the new 1040 form. They eliminated the 1040 A and 1040 EZ, but then they added six schedules depending on what you have. If you have a business, your business income would go on schedule one, or depending on if you have various deductions, your deductions would go on those different schedules, instead of 1040, so it's changed a little bit. But for people that have just standard deduction, probably W2 income, they would be on that new 1040 form only.

Tracy: This is why walking through products like yours, that you just prompt the questions. People just have to fill in the answers and the number just magically plop on the forms they belong, and that's huge help this year.

Lisa: Exactly. We don't make anything about forms or the tax laws, just ask you the simple questions and make the calculations on the backend, and put that information on the correct forms. Also, we were talking about people switching the standard deductions, so what we've done in the products, we ask those key questions up front about your, let's say your itemized deductions, if you're a homeowner or other itemized deductions like charitable contributions. We'll ask about those up front, and if they don't add up to more than the standard deduction, we give you the deduction that gives you the biggest benefit, the standard deduction, and we don't have you walk through a bunch of screens entering that information, so eliminating data entry.

Tracy: That's great. Cut to the chase. I'm all about that. All right, one of the things though that we have to talk about are the elimination of the personal exemptions, so that's right at the top of your 1040. We were in the past all getting these personal and dependent exemptions. Those are gone now, aren't they?

Lisa: That is gone. It was $4,050 in 2017 per dependent, per tax payer and if you had a spouse, so yeah, that is gone now. But they doubled the child tax credit, so that went from $1,000 to $2,000. You still get the credit for your kids under 17, but you no longer get the personal exemption of $4,050 for you and your spouse.

Tracy: Right, and so somehow this crazy math somehow works out. That although I'm not getting the personal exemption, because $4,000 sounds like a huge number that I just lost. Hopefully, because the child tax credit increases from $1,000 to $2,000 per child, plus this new credit of 500 for non-children dependents, just maybe it almost feels like it evens itself out a little.

Lisa: It could because credits are worth more than deductions, so credits are dollar for dollar against the taxes that you owe. For instance, say you add a $2,000 tax liability and then the $2,000 credit, that would totally wipe it out. But if you have a deduction of $2,000, that just reduces your income. If you had $50,000 and a $2,000 deduction, you now have $48,000 income in your tax on your tax rate.

Tracy: At the end of the day, a credit is better than a deduction all day long, right? Try to maximize for sure. The child tax credit, the rules surrounding the child tax credit are still the same, right? It's still the same age limitations and all the stuff that held in the past, so 14, right?

Lisa: Under 17 for child tax credit.

Tracy: Under 17, excuse me. That's all the same. The max now as a single parent, once you start making $200,000 it starts eliminate?

Lisa: Yes, but they did increase that max, so as you said 200,000, if you're single, 400,000 if you're married filing jointly which was a big increase, so more people are able to claim the child tax credit that were not able to claim it before.

Tax Reform Laws: three scary words for most Americans. 

But, it's not all scary. 

In fact, there's some good news too. Many tax filers have already seen more in their paychecks thanks to the reform.  

More now, means less later. So, don't expect a big refund.

We know that's a lot to digest! 

That's why TheStreet has partnered exclusively with TurboTax. Watch the full webinar with TurboTax tax expert and CPA Lisa Greene-Lewis and Tracy Byrnes. They tackle everything including changes for families, small businesses, students and more!

Don't have time for the full conversation? That's alright. You can watch the short clip above that focuses on the key tax reform changes:

1. Lower Tax Rates

If you're a member of the completely oblivious camp, you may have have missed that five of seven tax rates are lower this year. You didn't get a fantasy raise; that paycheck was bigger for a reason.

2. Changes to Deductions

The size of the standard deduction nearly doubled to $12,000 for single filers and $24,000 for married couples, but that comes at a price. Quite a few itemized deductions including those for moving expenses and alimony have been eliminated.

Related. The Ultimate Guide to Navigating Tax Reform: Watch Our Free Webinar.

3. Elimination of Personal and Dependent Exemptions

Speaking of eliminations, personal exemptions are now a thing of the past. Once upon a time in 2017, filers could claim $4,050 per taxpayer, dependent and spouse.

4. Increases in the Child Tax Credit

Good news parents, that rugrat just got more lucrative. The child tax credit increased to $2,000 from last year's $1000 and the new code adds a $500 credit for non-child dependents (Looking at you, basement dweller.)

Not eligible last year? You'll want to check again since the income limit was raised to $200,000 for single parents and $400,000 for married couples.

5. Changes for Homeowners

That white picket fence may not be as much of a saving grace this year. Previously, state and local property, income and sales taxes were fully deductible. Now that number is capped off at $10,000.

Watch the full webinar here.

Need more tax advice? Head over to our Tax Hub or get expert advice from TurboTax.

'