Tax changes for 2018: What you need to know

As the Trump administration and GOP lawmakers work to complete a tax reform overhaul by year’s end, the Internal Revenue Service (IRS) released some cost-of-living changes that will go into effect beginning next year.

From retirement savings contribution limit adjustments to exemption and deduction changes, here is what taxpayers need to know.

Retirement Savings

Individuals who pay into to a variety of savings plans, including a 401(k), 403(b), Thrift Savings Plan or most 457 plans will be able to contribute an extra $500 per year. The contribution limit for these plans will jump to $18,500 from the current level of $18,000.

IRA

These are the updated phase-out ranges for IRA contributions in 2018:

For individuals covered by a workplace retirement plan: $63,000 to $73,000.

For a married couple, the range will be $101,000 to $121,000 if one spouse is covered by a workplace retirement plan. This is an increase from the current $99,000 to $119,000 limit.

For a married couple where neither individual is covered by a workplace plan: $189,000 to $199,000.

The deduction is phased out between $0 and $10,000 for a married individual filing a separate return who is covered by a workplace retirement plan, unchanged from previous years.

Roth IRAs

The phase out ranges for those making contributions to Roth IRAs are as follows:

Singles and heads of households: $120,000 to $135,000

Married couples filing jointly: $189,000 to $199,000

Married individual, filing separately: $0 to $10,000 (unchanged)

Standard Deduction

Expected changes for the standard deduction in 2018 are:

Singles and married but filing separately: $6,500

Married couple filing jointly: $13,000

Heads of household: $9,550

Personal Exemption

The amount of tax-free money individuals can deduct from their income each year for every taxpayer and dependent claimed on their return is also set to rise by $100 to $4,150. The phase out begins at $266,700 for individuals and $320,000 for married couples filing jointly. The personal exemption phases out completely at $389,200 for individuals and $442,500 for married couples filing jointly.

Itemized Deductions

The limitation for itemized deductions for individuals will begin at $266,700. For married couples filing jointly, the limit starts at $320,000.

Alternative Minimum Tax

For the coming year, the alternative minimum tax exemption amount is $55,400 and the phase out begins for individuals with incomes of $123,100. For married couples filing together, the exemption will be $86,200 and will begin to phase out at $164,100.

Top Income Rate

The top income tax rate of 39.6% will apply to individuals with incomes higher than $426,700, or $480,050 for a married couple filing jointly.