9 Highlights of the New Tax Law
The long debated and anticipated GOP tax bill, officially known as the Tax Cuts and Jobs Act, was signed into law on December 22, 2017. This is the largest change to the tax code Americans have seen in three decades. That’s why the big question on everyone’s mind is: “How will this impact me?” As Certified Public Accountants, we’ve kept a close eye on this piece of legislation. Here’s a quick look at what you can expect.
- Seven individual tax rates remain.
There are still seven tax rates in 2018, just as there were in 2017. However, the rates have been reduced and income brackets have been reconfigured. Use the chart below to determine your tax rate based on your income and filing status. Remember, this applies to your 2018 returns. You can view your 2017 tax rate here.
|Tax Rate||Single with income of:||Head of household with income of:||Married filing jointly with an income of:||Married filing separately with an income of:|
|10%||Up to $9,525||Up to $13,600||Up to $19,050||Up to $9,525|
|12%||$9,526 to $38,700||$13,601 to $51,800||$19,051 to
|$9,526 to $38,700|
|22%||$38,701 to $82,500||$51,801 to $82,500||$77,401 to $165,000||$38,701 to $82,500|
|24%||$82,501 to $157,500||$82,501 to $157,500||$165,001 to $315,000||$82,501 to $157,500|
|32%||$157,501 to $200,000||$157,501 to $200,000||$315,001 to $400,000||$157,501 to $200,000|
|35%||$200,001 to $500,000||$200,001 to $500,000||$400,001 to $600,000||$200,001 to $300,000|
- Personal exemptions are going away.
Your 2017 tax return will be the last time you can enjoy a $4,050 personal exemption for yourself, your spouse, and eligible dependents.
- Standard deductions are almost doubled.
Proponents of the law like to tout the much larger standard deduction that’s allowed. See the chart below for a quick comparison.
|Filing Status||2017 Deduction||2018 Deduction|
|Heads of household||$9,350||$18,000|
|Married couples filing jointly||$12,700||$24,000|
- The SALT deduction is peppered with changes.
Congress debated the merits of eliminating the state and local tax (SALT) deduction altogether, but ultimately decided that doing so would unfairly burden taxpayers living in states with higher property taxes and personal incomes. The upshot is that in 2018, single and married filers may continue to take the SALT deduction as long as it doesn’t exceed $10,000. Married taxpayers filing separately are limited to a $5,000 deduction.
- The mortgage interest deduction doesn’t change that much.
The mortgage interest deduction remains, but there’s a lower cap of $750,000 rather than the $1 million currently allowed for a new home loan for your primary residence or a second home.
- Medical expensesare easier to claim, for now.
Medical costs in tax years 2017 and 2018 can be deducted when they exceed 7.5% of your adjusted gross income. That’s down from 10%. But keep in mind that the 10% threshold comes back in 2019.
- The death tax lives.
Republicans really wanted to get rid of the estate tax (also known as the death tax), but it survived. However, the law doubles the amount subject to federal estate taxes—that’s $10 million, instead of the current $5 million prior to inflation adjustments.
- The Obamacare mandate is maintained.
The individual health insurance mandate that is part of the Affordable Care Act is still in effect through 2018. It will be eliminated in 2019, but until then, the IRS will continue to enforce all Obamacare rules.
- The corporate tax rate is slashed.
Probably the most talked about aspect of this bill is the corporate tax rate, which is being slashed from 35% to 21%. The new rate goes into effect in 2018. How will this impact the U.S. economy, job growth, or your bank account? Only time will tell for sure.
These are just some of the major highlights of a complex law that’s just shy of 1,100 pages long. The good news is that you don’t have to navigate through these changes alone. Contact the tax experts at Tobin & Collins who can help you determine how the new tax law will impact your financial picture. For over 50 years, Tobin & Collins has provided accounting, tax, and business support services to clients in the New Jersey and New York metropolitan area.