On December 22, 2017, the Tax Cuts and Jobs Act was signed into effect starting January 1, 2018. This tax reform affects both personal and corporate tax rates. The individual tax breaks, exemptions and deductions are in effect until the end of 2025, while the corporate tax changes are permanent.
Individual Income Tax Brackets
The seven-tiered tax bracket system remains, but lowers the tax rates for the majority of taxpayers. This will result in an increase of 2.2% in after-tax income.
|
Income Tax Rate |
Income Levels |
||
|
2017 |
2018-2025 |
Single |
Married or Joint |
|
10% |
10% | $0 – $9,525 | $0 – $19,050 |
|
15% |
12% |
$9,525 – $38,700 |
$19,050 – $77,400 |
|
25% |
22% |
$38,700 – $82,500 |
$77,400 – $165,000 |
|
28% |
24% |
$82,500 – $157,500 |
$165,000 – $315,000 |
|
33% |
32% |
$157,500 – $200,000 |
$315,000 – $400,000 |
|
35% |
35% |
$200,000 – $500,000 |
$400,000 – $600,000 |
| 39.6% | 37% | $500,000+ |
$600,000+ |
Deductions
The standard deduction has nearly doubled. Single filers will have a deduction increase from $6,350 to $12,000. While married and joint filer deductions will increase from $12,700 to $24,000. However, personal deductions were eliminated. The total of income, sales and property tax deductions is capped at $10,000. Mortgage interest deductions are capped for joint filers at $750,000 of qualified residence loans. The limit applies to the combined amount of loans used to buy, build or substantially improve the taxpayers primary or secondary home.
Exemptions
The estate tax exemption nearly doubled to $11.2 million for singles and $22.4 million for couples; however, it eliminates personal exemptions, so taxpayers won’t be able to claim their dependents anymore.
Education
529 plans will not only apply toward eligible post-secondary institutions but can now be used to fund private elementary and secondary education up to $10,000 per student per year. Furthermore, the tax reform increases the Child Tax Credit from $1,000 to $2,000 per child which allows parents to claim private K-12 school tuition, daycare, and expenses for home-schooled students.
Affordable Healthcare Act Tax
The tax reform repeals the Affordable Healthcare Act tax on those without health insurance starting in 2019. This means you cannot be penalized for not having healthcare after 2018.
The information in this article is not intended as tax or legal advice. Please consult a legal or tax professional regarding your personal tax situation.
Sources:
IR-2018-32, Feb. 21, 2018 – IRS website https://www.irs.gov https://www.google.com/amp/s/www.forbes.com/sites/johntharvey/2017/09/29/trump-tax-good-bad-and-ugly/amp/
https://www.cnbc.com/2017/10/23/8-tax-changes-for-2018-you-need-to-know.html
https://www.google.com/amp/www.foxbusiness.com/markets/2017/10/24/tax-changes-for-2018-what-need-to-know.amp.html
http://www.businessinsider.com/trump-tax-plan-when-new-tax-plan-take-effect-2017-12
