How the New Tax Law Affects Your Personal Exemption

The new tax law that came into effect on January 1, 2018, has many Americans wondering how it will affect their personal exemptions. The biggest change in the tax law is the doubling of the standard deduction. This means that many taxpayers who previously itemized their deductions will now switch to taking the standard deduction, and for some, this change could mean losing their personal exemption. In this article, we’ll take a closer look at how the new tax law affects your personal exemption.

What is a Personal Exemption?

First, let’s define what a personal exemption is. A personal exemption is a deduction that taxpayers can claim for themselves, their spouse, and their dependents. In previous years, the amount of the personal exemption was $4,050 per person. This meant that a family of four could deduct $16,200 from their taxable income for personal exemptions alone.

The Disappearance of the Personal Exemption

With the new tax law, the personal exemption no longer exists. This could mean that families with multiple dependents may see a smaller tax break than they did in previous years. However, the increase in the standard deduction could offset this loss.

How the New Standard Deduction Affects Your Personal Exemption

As mentioned earlier, the new tax law has nearly doubled the standard deduction. The new standard deduction for 2018 is $12,000 for individuals and $24,000 for married couples filing jointly. This increase means that many taxpayers will no longer need to itemize their deductions and can instead take the standard deduction. However, it also means that those who have previously benefited from the personal exemption deduction may end up with a higher tax bill.

What About Dependents?

While the personal exemption has disappeared, taxpayers can still claim a credit for dependent children. To be eligible for this credit, the child must be under the age of 17 and meet certain other requirements. The credit for dependents has also increased under the new law, from $1,000 to $2,000 per child.

What About the Alternative Minimum Tax (AMT)?

The AMT affects taxpayers who have a high income and take a large number of deductions. The new tax law has increased the AMT exemption, which means that fewer taxpayers will be affected by the AMT. Additionally, the AMT exemption will now adjust for inflation, so fewer taxpayers will have to worry about being caught by surprise by the AMT.

Conclusion

The new tax law has made significant changes to the way taxpayers can claim deductions and exemptions, and the disappearance of the personal exemption is one of them. While this could result in a higher tax bill for some taxpayers, the increase in the standard deduction and the credit for dependents could soften the blow. As always, consulting with a tax professional is essential to navigating the changing tax landscape.

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