Every year the IRS announces updates to the following year's tax brackets, deductions, and other important numbers. Given that the GOP is working to pass tax reform as soon as possible, these numbers (along with much of the rest of the tax code) may be subject to change -- but for now, here's where you'll stand when the time comes to prepare your 2018 taxes.
Basic tax calculations
While tax rates generally remain the same from year to year, the income levels for each tax bracket often change to compensate for inflation and other factors. You can find a complete breakdown of all the 2018 tax brackets here.
The standard deduction for various filing statuses has increased slightly for 2018: It's now $13,000 for married taxpayers filing jointly, $6,500 for single and married-filing-separately taxpayers, and $9,550 for heads of household. For those who choose to itemize their deductions, the limitation on itemizing for 2018 starts at an adjusted gross income (AGI) of $320,000 for married taxpayers filing jointly and $266,700 for everyone else; if your earnings are above your threshold, any itemized deductions you claim will be reduced.
A personal exemption is the amount of income you get to deduct from your annual gross income for each taxpayer and dependent listed on your return. The personal exemption for 2018 will be $4,150, a slight increase over the 2017 amount.
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Credits and exclusions
The Earned Income Tax Credit is going up a little for 2018, with a new maximum of $6,444 (which applies to taxpayers filing jointly with three or more qualifying children). The income limits for the Lifetime Learning Credit are also going up a bit to $114,000. And the AGI cap on theÂ Saver's Credit will be lifted to $63,000 for married taxpayers filing jointly, $47,250 for head-of-household taxpayers, and $31,500 for single and married-filing-separately taxpayers.
The estate tax exemption (the amount of an estate that will be exempt from estate taxes) for 2018 will be $5.6 million. Thus anyone with a smaller estate than that need not fear estate taxes. In addition, the annual exemption for gift taxes will be going up to $15,000, so you can give any one person up to $15,000 worth of gifts in 2018 without having to pay a gift tax. Finally, the foreign earned income exclusion for 2018 will be $104,100. That's how much foreign income you can earn while living abroad without having to pay U.S. taxes on it.
Retirement account contribution limits
Retirement savers, rejoice: The annual contribution limit for 401(k)s, 403(b)s, and other workplace accounts is rising by $500 to $18,500 in 2018. The IRA contribution limits are unchanged, but some of the income limits are going up. For example, taxpayers who are covered by an employer-sponsored retirement account can't deduct their traditional IRA contributions if their income is above certain levels. That income limit is going up to $73,000 for single taxpayers, $121,000 for married taxpayers filing jointly, and $199,000 for taxpayers who aren't part of a workplace retirement plan but whose spouses are.
Not everyone can contribute to a Roth IRA; as annual incomes go up, the permitted Roth contribution phases out over a certain range of annual incomes and eventually hits zero for high-income taxpayers. For 2018, the Roth contribution income phase-out window is $120,000 to $135,000 for single and head-of-household taxpayers, and $189,000 to $199,000 for married taxpayers filing jointly. The phaseout range remains $0 to $10,000 for married taxpayers filing separately.
Anyone with an income greater than the phaseout range for their filing status can't contribute to a Roth -- unless they want to use the backdoor method.
What to do with this information
All of the above changes apply to the 2018 tax year. That means they won't come into effect until Jan. 1, 2018, and you'll use them when preparing your taxes for that year, which you'll probably do in early 2019. You don't want to use these numbers when preparing your 2017 taxes early next year; at that point, the 2017 numbers will still apply.
If you're not sure how to apply all of these rules and limits to your own tax return, consider hiring a tax professional to prepare your return for you. Yes, you'll have to pay a fee to get it done, but if your tax pro identifies just a few tax breaks that you wouldn't have thought of, you'll likely save enough on taxes to make up for the fee.
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