The recent tax bill that was signed into law is anticipated to have far-ranging impacts on both individuals and businesses. It eliminates numerous deductions, alters tax rates for virtually all filers, and boosts exemptions and deductions in other areas. Now is the time to prepare for how these changes will affect you and your future plans.
In upcoming posts, we will explore strategies for negotiating the new tax landscape. But to start, here are 25 key facts you need to know about the tax bill:
It will not impact your 2017 return.
The new tax laws will first apply to your 2018 taxes, which you will file in early/spring 2019. Your 2017 income tax, which many filers are preparing now, will not be affected.
The new tax bill affects both individuals and corporations.
The legislation pertains to businesses and personal income tax filers, although the provisions may end up being somewhat different over time. Most of the corporate changes are permanent, while the individual provisions may expire in 2025, depending on actions of the future Congress.
Same brackets, different rates.
There are still seven different income-based tax brackets that Americans will fall into when filing their income taxes. The difference, is some of the tax rates corresponding to those brackets have been reduced. The new rates are: 10%, 12%, 22%, 24%, 32%, 35% and 37%. Learn more about the new tax rates here.
Corporations will pay less…by a lot.
The corporate tax rate has been drastically reduced, from 35% down to 21% starting in 2018, and the alternative minimum tax for corporations has been completely removed.
The standard deduction has been doubled.
In an effort to reduce the number of Americans who itemize their deductions, the standard deduction has nearly been doubled. It has grown from $6,350 to $12,000 for single filers, while increasing from $12,700 to $24,000 for married couples filing jointly.
There’s no personal exemption anymore.
In the past, filers could lower their taxable income by claiming a $4,050 personal exemption for themselves, their spouse and each dependent. That is no longer the case. This may reduce or even negate any benefit some families receive from the new legislation.
There’s a cap on state and local tax deductions.
In the past, filers could deduct an unlimited amount of state and local property taxes, plus income or sales taxes, from their federal obligation. For those who itemize, that deduction still applies, however it has been capped at $10,000.
The child tax credit has been boosted.
For children under 17, the child tax credit has doubled, to $2,000, and may now be utilized by a wider base. Single parents earning up to $200,000 and married couples earning up to $400,000 may now claim the full credit.
You may be entitled to a non-child dependent credit.
A new credit applies to non-child dependents, like elderly parents, children over 17 and adult children with disabilities. Those who care and provide for these individuals now qualify for a new $500 temporary credit.
The alternative minimum tax (AMT) has been minimized.
Under the new tax laws, the amount of individuals who will need to file under the AMT has been significantly reduced. The tax bill raises the exemption to $70,300 for singles, and $109,400 for married couples.
New homebuyers will qualify for a reduced mortgage interest deduction.
If you already own your home, this change will not apply to you, however for all new homebuyers, homeowners will only be permitted to deduct the first $750,000 of their mortgage debt, down from $1 million.
Student loan interest is still deductible. And tuition waivers are still untaxed.
Under the new laws, you can still deduct up to $2,500 per year in student loan interest. And if you’re a grad student, tuition waivers—such as those awarded to teaching and research assistants—are still tax-free.
You can still deduct medical expenses.
The medical expense deduction has been expanded for two years, allowing filers to deduct medical expenses that add up to more than 7.5% of their adjusted gross income, compared to a previous level of 10%.
Teachers may still deduct for classroom supplies.
When teachers lay out their own funds to purchase supplies, they can still deduct those expenses from their income tax, up to $250.
The electric car credit survived.
There was much debate over the fate of this deduction, but the electric car tax credit is still in effect. New owners of electric vehicles may claim a credit of up to $7,500, but only on the first 200,000 electric cars sold by each manufacturer.
Home sale profits are still safe.
If you sell your house and profit from the deal, you can continue to exclude up to $500,000 (or $250,000 for single filers) from capital gains, provided you are selling your primary home and have lived in it for two of the last five years.
The 529 savings program has expanded.
Instead of only being able to apply 529 savings to college tuition as in the past, you can now use up to $10,000 of 529 savings annually for sending your children to public, private or religious elementary or secondary school.
Alimony payments are now taxed.
For couples who sign divorce or separation papers after December 31, 2018, alimony payments may no longer be deducted by the payer.
You won’t be able to deduct moving expenses.
In the past you could deduct the cost of moving for a job. That no longer applies, except for the military, who may qualify for certain exceptions.
You can’t deduct for tax prep expenses.
Previously, filers were permitted to deduct for the cost of hiring a professional tax preparer or the purchase of tax prep software. That deduction is now a memory.
Disasters aren’t deductible, either.
Losses from fire, storm, shipwreck or theft that weren’t covered by insurance were deductible until recently, as long as they were more than 10% of adjusted gross income. However now through 2025, filers can only claim this deduction when they’re impacted by an official national disaster, like a hurricane or the California wildfires, instead of a one-off event.
Bicycle commuters are out of luck.
Until now, bicycle commuters were able to deduct $20 per month from their income for bicycling to work. Not anymore.
You probably won’t ever need to worry about estate tax again.
Estate tax, which applies to the transfer of assets after someone’s death, isn’t likely to affect many Americans under the new bill. The previous amount exempted from the estate tax—$5.49 million for individuals and $10.98 million for married couples—has now been doubled.
You won’t be mandated to carry health insurance.
The Obamacare mandate that individuals carry health insurance or pay a penalty as a result has been removed.
Inflation adjustments will come at a slower pace.
The latest tax bill now utilizes a metric called “chained CPI” to track inflation, which is a slower measure than the prior method. The new system will raise more money for the federal government over time, but deductions, credits and exemptions will be worth less to filers.
Do you need one-to-one advice on how to prepare for and navigate through the new tax laws? Call us today at (818) 242-4888 or visit our schedule your free 30-minute consult now. Robert Hall & Associates is a leading tax preparer and consultant serving Glendale, Burbank, Pasadena and the Greater Los Angeles area. Our team of enrolled agents are ready to help.
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