As a tax-paying American, you’re likely well aware of the recent Tax Cuts and Job Act President Trump and the Congress unveiled in late 2017. The new bill called for some extensive changes in tax law, especially in the areas of tax bracket categories and limits on itemized deductions. The new tax law is hundreds of pages long and extremely complex, but we’re here to distill the information down for you so you can know just how the new rules will affect your day to day live for your 2018 tax return and beyond.
There are four main areas in which the this new tax code will have an impact on your overall bottom line:
- A Major Increase in the Standard Deduction Cap and Exemption Elimination Means Significant Changes.
The new tax law has some huge changes when it comes to the standard deduction and exemptions. While exemptions were eliminated, the amount of standard deductions have nearly doubled. Consider the deduction table below:
|Married Filing Jointly||$12,700||$24,000||$24,400|
|Married Filing Separately||$6,350||$12,000||$12,200|
|Head of Household||$9,350||$18,000||$18,350|
What do the higher deduction caps mean for you? For most Americans, it means that you will NOT end up exceeding the cap, therefore you will be taking the standard tax deduction and end up having a HIGHER taxable income.
- Income Tax Rates and Brackets Have Changed
Both tax rates and brackets changed greatly in 2018, and will change again for 2019. In general, the new tax rates will mean an overall decrease in taxes paid for most people. The idea behind this change was to provide greater relief for middle-class Americans.For example, everyone who lands in the 24% tax bracket will see a change for the better, but those who found themselves in the next bracket group might find they are paying a bit more in yearly income tax.
- What Will the New Child Tax Credit Mean to Me?
If you’re a parent, there’s some good news in the new tax reform. In 2017, the tax credit per child was only $1,000, but was bumped up to $2000 per child in 2018, and will stay at that rate for 2019. Additionally, the income limit for claiming the child care tax credit will increase to $200k for single filers and $400k for married couples filing jointly. This larger credit helps offset the loss of personal exemptions and is great news for parents.
- Sweeping Changes to Itemized Deductions
The huge bump in the standard deduction amount means that only taxpayers who have deductions exceeding those amounts will be able to itemize deductions. This is why it is more important than ever to ensure that you are making sure you are accounting for any and all possible deductions in your finances. Medical and dental costs, for example, are now deductible at 7.5 percent of your AGI as opposed to the 10 percent of previous years. State and Local Taxes (SALT) and property taxes can still be deductible, but now have a cap on them of a total of $10,000. These changes and others mean that it is very important you educate yourself on exactly what can be itemized and for how much, or work with an experienced tax professional.
The new tax laws can be daunting to anyone. We are here to help! Call us today to make an appointment with someone who can help you maximize the new rules in your favor.