Not sure what to make of the Tax Cuts and Jobs Act signed into law by President Trump in December 2017? Most of the changes will go into effect January 1, 2018. But, you won’t file your federal tax return for the 2018 tax year until 2019, giving you time to understand how the changes will affect you. In the meantime, here is a quick rundown on some of the changes brought by the new tax law:
2018 Tax Brackets
There are still seven tax brackets for individuals, but depending on your income, the rates have changed. The new rates are: 10%, 12%, 22%, 24%, 32%, 35% and 37%.
Standard Deduction and Personal Exemption
The standard deduction has increased:
- $6,350 to $12,000 for individuals and married couples filing separately,
- $9,350 to $18,000 for heads of household, and
- $12,700 to $24,000 for married couples filing jointly.
The personal exemption has been eliminated. Previously, you could claim a $4,050 personal exemption for yourself, your spouse and each of your dependents, which lowered your taxable income.
Child Tax Credit
The child tax credit has doubled to $2,000 for children under 17 and is available, in full, to more people. Single parents who make up to $200,000 and married couples who make up to $400,000 will now be able to claim the credit.
Mortgage Interest Deduction
For mortgages taken after December 15, 2017, the deduction can only be taken on mortgage debt of up to $750,000, down from $1 million currently. Preexisting mortgages are grandfathered in.
The interest on home equity debt can no longer be deducted at all, whereas previously up to $100,000 in home equity debt could be considered.
The threshold for the medical expenses deduction has been reduced from 10% of AGI to 7.5% of AGI. In other words, if your adjusted gross income is $50,000, you can now deduct any unreimbursed medical expenses over $3,750, not $5,000 as set by prior tax law. Unlike most other provisions in the bill, this will apply to the 2017 tax year.
State and Local Tax (SALT) Deduction
The deduction for state and local taxes is still available for those who itemize their taxes -- but has been capped at $10,000. Previously, filers could deduct an unlimited amount for state and local property taxes, plus income or sales taxes.
Many deductions will end in the tax year 2017. Four of these:
- Employee business expenses
- Tax preparation fees
- Investment interest expenses
- Personal casualty and theft losses (except certain losses incurred in specific federally declared disaster areas)
There are numerous other changes to the tax law that affect both individual and business filers. It is wise to consult with your tax advisor or income tax service to clarify your particular situation and make tax planning an integral part of your long-term financial planning.
Charles P Myrick CPA offers tax preparation for individuals using a process that combines smart, personalized planning with annual tax preparation and filing. We work closely with tax lawyers, and investment advisors to ensure that all the details are legally sound, technically accurate, and working to your maximum benefit. Contact us to learn more: (202) 789-8898