The Tax Cuts and Jobs Act of 2017 have introduced the most sweeping revisions to the U.S. Tax Code since the Tax reform Act of 1986. As it has been nearly 30 years since the last major revision to the Tax Code, many filers may wonder how these adjustments may affect your returns for the 2018 filing period. Below is a list of some of the more impactful changes and how they may affect your returns.
Lower Tax Rates and Changed Income Ranges
Although the TCJA retains the seven income tax brackets used in years past, a number of the rates associated with the bracket have been lowered:
The current brackets are: 10%, 15%, 25%, 28%, 33%, 35% and 39.6%
The new brackets will be: 10%, 12%, 22%, 24%, 32%, 35% and 37%
In addition to these bracket adjustments, the income thresholds at which these rates are implemented have also been adjusted:
Larger Standard Deductions and increased Child Tax Credit
The TCJA has almost doubled the standard deduction amounts for 2018:
$12,000 for singles (up from $6,350 for 2017).
$24,000 for married joint-filing couples (up from $12,700).
$18,000 for heads of households (up from $9,350).
Additionally, the Child Tax Credit has been doubled from $1,000 to $2,000 per child along with a corresponding increase in the refundable amount from $1,100 to $1,400.
Eliminated Personal dependent exemption:
The TCJA has eliminated the $4,050 personal exemption that tax payers could claim for each of their dependents in years past.
Reduction of State and local tax deductions:
Whereas previously state and local property, income, and sales taxes used to be fully deductible, the TCJA limits the amount that can be deducted for taxes of these types to $10,000.
The TCJA caps the amount of mortgage debt interest that can be deducted to $750,000 rather than the $1,000,000 cap from previous years.
The TCJA eliminates the Affordable Care Act (ACA) tax penalty for not having health insurance beginning in 2019.
Self-employment and small businesses:
The TCJA has reduced the top corporate tax rate to 21%, and also introduces a new 20% deduction for incomes for “pass-through” entities (partnerships, S Corps, sole proprietorships). The TCJA also roughly doubles of the amount small businesses can expense from $510,000 to $1,000,000, and also eliminates the corporate alternative minimum tax (AMT).
Although it may be difficult to understand how the new tax laws affect you as a taxpayer, the staff at Tidwell & Associates is eager to help you understand the implications of the changes. You can rest assured that we will apply the new laws to your returns for the best possible results.
Please contact us if you have any questions!