So much of the tax laws have changed since the Tax Cuts and Jobs Act (TCJA) passed by Donald Trump.
Two issues I want to touch on this morning are the Standard Deduction for individuals and Divorced Parents with Minor Children.
Standard Deduction
Many taxpayers mistakenly think they don’t need to track Itemized Deductions any longer since the Federal Standard Deduction is $24,800 for Married filers and $12,400 for Single filers. Nothing could be farther from the truth for Alabama residents!
The Standard Deduction on your Alabama tax return is still only $4,000 for Married filers and a paltry $2,000 for Single filers. Many taxpayers are unaware that they can elect to take the Standard Deduction on their federal return, but still Itemize Deductions on their State of Alabama return.
In addition to the high discrepancy between the federal and state Standard Deduction amounts, many of the personal deductions that were done away with under TCJA are still valid for Alabama filers. That is because Alabama did not automatically adopt the federal changes.
On average, we see $1,200 tax savings for individuals who continue to itemize their personal deductions on their State of Alabama income tax returns.
The Importance and Unimportance of the Personal Exemptions for Children
Many of you are aware that the old Personal Exemption for each Dependent was done away with when TCJA passed. Especially if you’ve filled out a W-4 withholding certificate recently. Before TCJA, those exemptions for dependent children were so valuable that couples would bargain with them in divorce negotiations.
So today, if you are the lucky or unlucky owner of one of those old outdated divorce decrees that dictates one parent shall claim the children for tax purposes in odd years and the other parent gets to claim the children for taxes in even years, you really should discuss this with one of my agents.
Because of these divorce documents, we see scenarios where every other year, only the government wins at tax time.