Tax Reform FAQs: Are Personal Exemptions and Standard Deductions Still Allowed?
posted Feb 26, 2018 by Laura H. Yalanis, CPA, MST in the Global Tax Blog
Did you tune into our recent webinar? Don’t worry if you missed it—you can find it here- “The Impact of Tax Reform on Businesses and Individuals”. We had some great questions come in from listeners including one on the standard deduction and personal exemptions. Are these benefits still available under the Tax Cuts and Jobs Act?
Our listener’s question
Q: Before you could both itemize and have personal deductions. Is this still allowed?
A: Previously you could itemize and you were allowed a personal exemption for your dependents. You also got the personal exemption if you took that standard deduction. What’s different now is that you still choose to take either the standard deduction or itemize but there are no longer personal exemptions.
A bit of background...
Personal exemptions: For tax years 2017 and prior, the IRS offers several deductions you can use to reduce your taxable income- one of which is known as the personal exemption. A taxpayer is permitted to claim one personal exemption for him/her self and one exemption for each person he/she is able to claim as a dependent.
Standard deduction: The standard deduction is a dollar amount that reduces the amount of income on which you are taxed and varies according to your tax filing status.
Itemized deduction: Itemizing means listing out each deduction you qualify for, the sum of which is used to lower your adjusted gross income. Check out our blog for more on these, “The New Tax Law & Its Impact on Itemized Deductions.”
If you itemize deductions you cannot take the standard deduction. Taxpayers will itemize rather than take the standard deduction when the sum of their itemized deductions is greater than the standard deduction amount.
Personal Exemptions- 2017
For 2017, taxpayers can claim a personal exemption of $4,050 each for themselves, their spouses and any dependents. You can see how beneficial this would be for families with children and or other dependents.
Changes under tax reform
For 2018 through 2025, the TCJA suspends personal exemptions. This will certainly increase taxable income for large families.
Itemizing vs. standard deduction- 2017
Taxpayers can choose to itemize certain deductions on Schedule A or take the standard deduction based on their filing status. Itemizing deductions when the total will be larger than the standard deduction saves tax, but it makes filing more complicated.
For 2017, the standard deductions are $6,350 for singles and separate filers, $9,350 for head of household filers, and $12,700 for married couples filing jointly.
Changes under tax reform
The TCJA nearly doubles the standard deductions for 2018 to $12,000 for singles and separate filers, $18,000 for heads of households, and $24,000 for joint filers. (These amounts will be adjusted for inflation for 2019 through 2025.)
Keep this in mind when filing next year
As a reminder, these changes do not take effect until next filing season. However, it would be smart to think about how the absence of the personal exemption will affect your taxes next year. Questions? Contact a member of our Tax Services Team.