What’s significant about 1,097? That’s how many pages in the “Tax Cuts and Jobs Act” that President Trump signed in late December 2017. No time to read each page? No worries. Below is a short synopsis of changes that have a high probability of impacting you and your family.
You may find yourself in a new tax bracket in 2018. Hopefully you’ll benefit from the change, but not everyone will. For instance, a married couple filing jointly (MFJ) in 2017 with $415,000 of taxable income would be in the 33 percent bracket. Keeping all things the same in 2018, that couple will be in the 35 percent bracket!
The new law still has seven brackets, but the beginning and ending income levels have changed for each. In addition, the corresponding rates for these seven brackets have either remained constant or decreased by 1 to 4 percent. You’ll want to take a look and determine where you think you’ll end up in 2018 so you can plan accordingly.
The “Tax Cuts and Jobs Act” will change future filing practices for many Americans. According to IRS data, approximately 30 percent of Americans currently calculate their tax deductions by itemizing rather than taking the standard deduction. That number is likely to drop given the increased standard deduction and the removal of, or limitations placed, on specific itemized expenses.
For tax year 2017, the standard deduction is $6,350 for a single individual or $12,700 for MFJs and allowable itemized deductions include:
For tax year 2018, the new law will increase the standard deduction to $12,000 for single individuals and $24,000 for MFJs. Several itemized deductions have been eliminated or restricted. Here’s a sample of what itemized deductions will look like in 2018:
The new tax law also eliminated personal exemptions – at least through calendar year 2025. In 2017, personal exemptions weighed in at $4,050 per taxpayer, spouse (if MFJ), and any qualified dependents.
On a positive note, the renewed Child Tax Credit will be a boon for taxpayers with dependents. Some may recoup their lost personal exemptions, or even come out ahead. In 2018, the dollar-for-dollar reduction in tax liability will double from $1,000 per qualifying child to $2,000. A qualified child is one who is age 16 or younger, resides with the taxpayer for more than half the year, and receives more than half of its support from the taxpayer. More taxpayers will qualify for this credit under the new phase-out limits, which begin when taxable income hits $200,000 for single individuals and $400,000 for MFJs.
The above is just a basic overview of what the tax landscape will look like moving forward. I encourage you to meet with your CPA to discuss its impact on you and determine if changes should be made to your tax-planning methods for 2018 and beyond.
And, remember, few things are set in stone. Many of the tax code changes mentioned above are subject to a sunset provision. That means the law will revert back to its previous form at the end of a fixed period. In the case of the “Tax Cuts and Jobs Act”, the fixed period extends through calendar year 2025.