According to CNBC, 47% of American families with minors in the household had no idea how the new tax laws would affect them. Now that tax filing season has passed, Texans got some hands-on experience. More people may now understand how the tax reform affects everything from alimony payments to inheritance.
Even so, for people who do not have a major life-changing event that affects taxes, there are many surprises in the making when these events occur. Here are some of the key changes that families should keep in mind going forward.
More money for families
The new tax law provides a higher standard deduction than before. Single people can claim only $12,000, but married couples filing jointly may claim up to $24,000. The child tax credit for minors increased to $2,000. On the other hand, some personal exemptions no longer exist and the government placed limitations on itemized deductions.
Opportunities for students
According to CNN, college students may make better use of the 529 college savings plans available in almost every state. Families typically use these savings plans to provide tax-free income to college students that they may use for qualifying purchases related to obtaining higher education. Now, some families can also use the 529 savings plan for private school at the elementary and secondary levels, tax-free. College students may also deduct student loan interest up to $2,500.
Trouble for divorcees
For divorcees with one breadwinner earning significantly higher than the other spouse, alimony payments just became a lot more complicated. The breadwinner can no longer deduct alimony payments and the person receiving the income no longer counts this as taxable income. This may make it more difficult for homemakers to negotiate the income they may need to get back on their feet when a marriage ends.
There are some good and bad changes in the new tax reform. However, whether each benefit stacks up as a pro or con will depend on an individual’s or married couple’s unique situation.