If you've paid any attention to news coverage of the new Republican tax law, you've probably heard that the standard deduction is being doubled. But did you know that personal exemptions are going away?
This means that if you're a single taxpayer without dependents who doesn't itemize deductions, your savings will amount to under $200 as a result of increased standard deduction. it's roughly double that for married couples filing jointly.
Why is that?
In tax year 2017 (that is, having to do with your income during 2017) your standard deduction is $6350 for single individuals, $9350 for heads of households, or $12,750 for married couples filing jointly. For 2018 it's increasing to $12,000 for individuals, $18,000 for heads of households, and $24,000 for married couples filing jointly. (The standard deduction is higher for both years for those who are over 65 for have certain disabilities, and it's lower if someone else claims you as a dependent, but I'm not wading into that swamp right now.)
But for tax year 2017 you are able to subtract an additional $4050 personal exemption for yourself and each dependent, regardless of whether you itemize deductions or claim the standard deduction. That's not the case for tax year 2018.
The net result is that a higher standard deduction will mean fewer people itemizing, but not that much in tax savings. The tax savings of consequence come mainly from somewhat lower tax rates. And, of course, most of the savings will end up in the pockets of the very wealthy.
For more detailed information, see the website of the Institute for Tax and Economic Policy here.by