****THE FOLLOWING IS EXTREMELY IMPORTANT INFORMATION
This is an outline of some of the biggest changes to the new tax law that went into effect for the 2018 tax year and going forward.
The current 7-tier tax bracket will be reduced to four tax brackets. They are as follows:
10% - Income $0 to $9,700
12% - Income $9,526 to $39,475
22% - Income $39,476 to $84,200
24% - Income $84,201 to $160,725
32% - Income $160,726 to $204,100
35% - Income $204,101 to $510,300
37% - Income $510,301 and up
10% - Income $0 to $19,400
12% - Income $19,051 to $78,950
22% - Income $78,951 to $168,400
24% - Income $168,401 to $321,450
32% - Income $321,451 to $408,200
35% - Income $408,201 to $612,350
37% - Income $612,351 and up
This next section is particularly important to your deductions as taxpayers.
The standard deduction is for those that don’t have deductions that add up to or more than the standard deduction that the government gives you. Back in 2017 the standard deduction was $6,350 for a single filer, $9,350 for head of household and $12,700 for a married filer. Under the 2019 plan they nearly double the standard deduction so that single filers can deduct $12,200, $18,350 for head of household and married filers can deduct $24,400. This sounds appealing on paper but there are hidden factors here. Under the old system each taxpayer AND EACH OF THEIR CHILD DEPENDENTS got an additional $4,050 deduction called personal exemptions. This deduction has been eliminated. For example in the old 2017 system a married couple with 3 children would get a standard + personal exemption deduction of $32,950 ($12,700 for married filers + $8,100 for their personal exemption + $12,150 for their three children). But in the current tax plan that same family would get a total of $24,000 in the deduction.
The credit increases up to $2,000 per child, and the first $1,400 is refundable, meaning the credit could reduce your tax liability below zero and you would still be able to receive a tax refund. The cut off for the tax credit increases from $110,000 to $400,000 for married couples filing jointly. The expanded credit ends after 2025.
This is the area that has the most dramatic changes. The new law raised the standard deduction and therefore eliminated most of the itemized deductions. Itemized deductions are things like medical expenses, state and local taxes, mortgage interest, property and personal property taxes, charitable contributions, tax preparer expense & unreimbursed employee job expenses. If these deductions add up to more than your allotted standard deductions then you are allowed to use those to your benefit instead of the standard deduction.
The following aforementioned deductions remain:
The following are the deductions which the new law eliminated:
I haven’t addressed the changes proposed to businesses. The most impacting is lowering the existing corporate tax rate from 35% to 21% in the hopes that the increased corporate profits will create more jobs and higher wages. Also pass through entities (LLCs and S Corps) will get a 20% deduction from corporate profits before the pass through to the personal returns.