Eliminating the Personal Exemption
Prior to 2018, tax filers could claim a personal exemption for themselves as well as any dependents they had. This personal exemption was worth $4,050. For individuals, eliminating this exemption doesn’t have a huge impact on their tax liability. But if you have a large household, that can add tens of thousands of dollars to your taxable income, and that will likely increase your state tax liability by a significant amount.
Utah has the largest average household size in the nation, so most Utah taxpayers are going to feel the effects of losing the personal exemption on their tax returns.
Increased Standard Deduction
Additionally, the Tax Cuts and Jobs Act doubled the standard deduction for federal returns. On the surface, this might sound like a good thing—and for those with a low value of itemized deductions, it is. But Utah has an extremely high rate of charitable giving, which means that most Utah taxpayers were already receiving that same benefit amount prior to the increase to the standard deduction amount.
So, this increased standard deduction, which would offset the loss of the personal exemption for many taxpayers, essentially has no benefit for many Utah households.
What Can You Do?
Unfortunately, there is little you can do now to impact your tax liability for 2018. If you have the funds available, maximizing contributions to retirement and education accounts could help to reduce your taxable income, and therefore reduce your tax liability as well. However, the best thing you can do for your 2018 taxes is to simply be prepared for the change in what you owe.
If you have always received a refund, that refund amount may decrease significantly, you may even find yourself owing on your taxes this year. If you typically made a tax payment each tax season, you can expect the amount you pay this year to increase.
As far as your 2019 taxes go, there are a few things you can do to prevent this from happening next year. First, get some Provo tax help this year so that you can better understand the tax law changes and how they impact you. Second, make retirement and education contributions throughout the year to decrease your tax liability. And third, check your state withholdings on your paycheck; you will likely want to increase the amount withheld to ensure you don’t find yourself with a large tax bill when you file in 2020.
If you need some Provo tax help on your return, or you want to learn more about how these tax law changes may impact you, contact The Accounting Guys to speak to one of our experienced and knowledgeable CPAs.