As tax season rolls around, one of the first things to do is pay attention to changes in tax deductions and tax credits you can claim when filing your income tax return with the Internal Revenue Service. Read on to learn about what did change and how you can take advantage of those changes and tax breaks for 2018.
1. Tax Brackets Get Wider
The federal income tax system uses a progressive tax structure, which means that as you earn more income your tax rate goes up as well. The IRS tax brackets increase each year with inflation, however. For example, the 10 percent tax bracket -- the lowest bracket -- includes all income up to the following amounts for each tax filing status:
Married filing jointly: $18,650 -- up from $18,550 in 2016
Married filing separately: $9,325 -- up from $9,275
Head of household: $13,350 -- up from $13,250
Single: $9,325 -- up from $9,275
The higher tax brackets also increased proportionally with inflation for the 2017 tax year. These jumps are automatically accounted for when you file your tax return.
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2. Standard Deduction Increases
It's not a huge jump, but the standard deduction increased slightly for the 2017 tax year for all filing statuses. The increase could impact whether you claim the standard deduction or itemize. For 2017, the standard deduction for each filing status is as follows:
Married filing jointly: $12,700 -- up from $12,600 in 2016
Married filing separately: $6,350 -- up from $6,300
Head of household: $9,350 -- up from $9,300
Single: $6,350 -- up from $6,300
3. Increased Personal Exemption Phaseout Ranges
As long as no one else claims you as a dependent, you can claim a personal exemption for yourself. You can also claim an exemption for your spouse and for each of your dependent children. For the 2017 tax year, the value of each exemption you claim is unchanged from 2016 at $4,050, but the income level where you begin to phase out personal exemptions is increasing:
Married filing jointly: Phaseout begins at $313,800, and personal exemptions phase out completely at $436,300 -- up from $311,300 and $433,800, respectively, in 2016
Single filers: Phaseout begins at $261,500, and personal exemptions phase out completely at $384,000 -- up from $259,400 and $381,900, respectively
4. Increased Health Savings Account Contribution Limit
HSAs enable you to save pretax dollars in a special account that allows the money to grow without being taxed. If you use the money for qualified medical expenses, any withdrawals, including earnings, come out completely tax-free. For the 2017 tax year, individuals covered by a high-deductible health insurance plan can contribute $3,400 to the plan -- up $50 from 2016. The contribution limit for married couples, however, remains the same at $6,750.
5. Earned Income Tax Credit Increases
The earned income tax credit underwent several increases in 2017. First, you can now have up to $3,450 of investment income for the year -- up from $3,400 in 2016 -- and still qualify for the EITC. Second, the maximum income you can have and still qualify for the EITC also increased for each filing status:
Married Filing Jointly
No qualifying children: $20,600 -- up from $20,430 in 2016
One qualifying child: $45,207 -- up from $44,846
Two qualifying children: $50,597 -- up from $50,198
Three or more qualifying children: $53,930 -- up from $53,505
All Other Filing Statuses
No qualifying children: $15,010 -- up from $14,880 in 2016
One qualifying child: $39,617 -- up from $39,296
Two qualifying children: $45,007 -- up from $44,648
Three or more qualifying children: $48,340 -- up from $47,955
Related: 10 Tax Tips Every Married Couple Must KnowIf you qualify for the EITC, the maximum tax credit amount varies depending on how many qualifying children you have. These amounts also increased slightly for 2017:
No qualifying children: $510 -- up from $506 in 2016
One qualifying child: $3,400 -- up from $3,373
Two qualifying children: $5,616 -- up from 5,572
Three qualifying children: $6,318 -- up from $6,269
To claim the earned-income tax credit, you must file Schedule EIC with your income tax return.
6. Higher Income Limits for Retirement Savings Credit
The retirement savings credit rewards qualified taxpayers who save for retirement with a tax credit equal to a portion of their contributions to qualified retirement plans including IRAs, 401k and 403b plans.
For the 2017 tax year, you can claim a credit equal to 10 percent of your contribution if your income falls into the following brackets:
Married filing jointly: $40,001 to $62,000 -- up from $40,001 to $61,500 in 2016
Head of household: $30,001 to $46,500 -- up from $30,001 to $46,125
All others: $20,001 to $31,000 -- up from $20,001 to $30,750
For other qualifying income levels, you can claim a saver's credit of 20 percent or 50 percent of your contribution; these brackets did not change in 2017. All income brackets are scheduled to increase for the 2018 tax year, however.
If you qualify, you must file your taxes with Form 1040 or Form 1040A and claim the credit using Form 8880.
7. Increased Employer-Paid Parking or Transit Tax Breaks
Income and benefits you receive from your employer are typically included in your taxable income, except for qualified parking or transportation benefits. During the 2017 tax year, your employer can pay more money on your behalf each month: $255 per month, up from $250 per month in 2016. You don't have to meet any special income limits or report it anywhere on your taxes -- it's already excluded.
Learn: How to File Taxes Early -- and Get Your Return Faster
Business owners often consider small business loans as a method of financing growth or expansion. But getting approved for a business loan isn't always easy. Bankers look at several factors to determine whether to grant the loan and which small business loan rates are applicable. So knowing what a lender will look for in you and your application are the keys to success.
Here's what you need to know to get the loan you want for your business.
Steps to Get a Small Business Loan
It can be difficult to qualify for small business loans because of the all of the documentation that's required. Investing the time to prepare your loan application accurately and completely, however, could improve your chances of obtaining one of the best small business loans for your company. Here are the steps for getting a small business loan:
1. Determine What Type of Loan You Need
More than one type of small business loan exists, and you'll need to narrow down your options and figure out which one to apply for. For example, the company might be better off with a business line of credit, rather than a longer-term loan, to fund seasonal fluctuations in sales. Accounts receivable financing, purchase order financing and small business credit cards are other kinds of loans available to a business.
2. Compile the Business's Financial Statements
Gather all the financial statements related to your business. Include the income statement, balance sheet and cash flow for the previous three years. Review those statements for any variances that the bank might want explained, such as a decrease in revenues for several consecutive months. When considering applicants for a business loan, lenders prefer to see a pattern of consistent growth.
Find Out: How to Get a Business Loan With Bad Credit
3. Check Your Business's Credit Rating and Scores
For best results, request your report from all three of the major credit reporting companies -- Experian, TransUnion and Equifax. Also check your Dun & Bradstreet credit report. Contact the companies to dispute any errors you find. Knowing what's on your business credit reports is proactive; don't wait to be caught off guard by your lender, or you might ruin your chances of getting the loan you want.
4. Check Your Personal Credit Rating and Scores
Getting a business loan could depend on your personal credit as well as your business's credit. Check your personal credit rating and scores for accuracy, and dispute any errors you see in the information on file with the credit reporting agencies.
5. Gather the Documentation You'll Need for the Specific Type of Loan
In addition to your financial statements, you'll need to gather other relevant documentation. Documentation could include:
Cash flow statements
Federal tax ID number
Articles of incorporation
Financial statements of the business owners
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6. Complete a Business Plan for the Next 3 Years
Be prepared to share your business plan for the next few years. The plan should show that the company can pay the principal and interest on the loan you're requesting. Keep projections realistic and conservative. Lenders are risk averse and need to be assured that the company can pay the monthly interest as well as the loan principal amount when it's due.
7. Know the Factors That Lenders Consider When Deciding Whether to Grant a Loan
Lenders consider several key details when deciding whether to give out a loan. Factors include:
Age of the company
Background of the owners
Note that startups have a much more difficult time finding loans because of a lack of financial history.
8. Determine What Collateral Is Available to Back the Loan
Assess what belongs to your company and decide what you could put up as collateral. Collateral items could include company assets such as:
For the purposes of obtaining the loan, the assets are valued at what they could be sold for if the company was going out of business, rather than book value. As a small business, you might have to put up some of your personal assets to secure the business loan as well.
9. Research Different Banks and Lenders
Just as you'd do when seeking a personal loan, you'll need to do your research to compare different banks' and lenders' small business loan offerings. When you already have a relationship with a local bank, it might make sense to approach that bank for a business loan. Or you can start with other local banks that offer business loans and then branch out. The advantage of getting a loan from a local bank is that it makes it easier to have a personal relationship with your lender.
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10. Compare Loan Amounts, Fees, Interest Rates and Penalties
Consider all the costs of the loans, including any fees you'll be charged. Fees can include:
Credit report fees
Government loans, such SBA small business loans, also have a guaranty fee that's a percentage of a portion of the loan. And small business loan rates will vary as to the type of loan, creditworthiness of the business, what the loan will be used for, collateral and personal guarantee of the business owner.
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11. Complete the Loan Application
Because the application will be detailed, set aside enough time to complete it. And after you submit the application, be ready to provide more details, because the bank might require additional documentation or a personal interview to grant the loan.
12. Understand the Loan Covenants
Loan covenants are restrictions regarding what the company can or cannot do at the same time the loan is outstanding. Penalties could be imposed by the bank or the entire loan might become immediately due if you breach the covenants.
Getting a small business loan is a challenge. Preparation before you contact a potential lender is one of the keys to success. The more you know about business loans, the better your chances of finding the business loan that best fits your needs at a price you can afford.
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