Personal income taxes are changing with the passage of the December 2017 tax bill. It’s time to decode the new tax law, and the following guide will help you determine how tax rate, bracket and deduction changes will affect your finances in 2018 and beyond.
When Does Everything Take Effect?
First, you should understand that unless otherwise noted, the recent tax bill changes will go into effect for the 2018 tax year, which means from January 1, 2018, to December 31, 2018. It will not affect 2017’s personal tax filing, but it will affect take-home pay for many workers, depending on your tax bracket and withholdings.
Tax brackets have seen significant changes, particularly the top bracket, which has been reduced from 39.6% to 37% and will affect most high-income earners. There are still seven federal income brackets, but the tax rates and income ranges have been amended to the following:
For Single Filers
|10%||$0 – $9,525|
|12%||$9,526 – $38,700|
|22%||$38,701 – $82,500|
|24%||$82,501 – $157,500|
|32%||$157,501 – $200,000|
|35%||$200,001 – $500,000|
|37%||More than $500,001|
For Joint Filers
|10%||$0 – $19,050|
|12%||$19,051 – $77,400|
|22%||$77,401 – $165,000|
|24%||$165,001 – $315,000|
|32%||$315,001 – $400,000|
|35%||$400,001 – $600,000|
|37%||More than $600,000|
Changes in Deductions
Instead of having a personal exemption and the standard deduction, the new bill simplifies matters by creating a higher standard deduction – up from $6,350 to $12,000 for single filers – and eliminating the personal exemption. When filing jointly, the standard deduction is $24,000.
There are several deductions that have been eliminated for the 2018 tax year. These include:
- Tax preparation expenses
- Moving expenses (except for military)
- Casualty and theft losses unrelated to a federally declared disaster
- Entertainment expenses
- Unreimbursed employee expenses
Talk to our team at Robert L. Coval, CPA to determine if you will be affected by any other eliminated deductions.
Parental Tax Breaks
The Child Tax Credit has been expanded – up from $1,000 to $2,000 – and the eligibility threshold has increased significantly. For married filing jointly, the new limit is $400,000, while individuals jump to $200,000. These changes should result in a similar tax balance from 2017 to 2018 for most families.
Education Tax Breaks
If you’ve been investing in a 529 college savings plan, there’s good news. You’ll now be able to use those funds to help pay for private schooling and tutoring for K-12 grade levels instead of just college. If you decide to exercise this option, it would be wise to speak with a financial planner and make sure you’re still saving enough for your child’s college.
Medical Expense Deductions
The current deduction for medical expenses has dropped from 10% of your adjusted gross income to just 7.5%. The primary thing to note here is that this is one of the few provisions that is retroactive to the 2017 tax year, which means it will affect you this April.
Taxpayers can now deduct donations of up to 60% of their income, which is up from the previous 50% cap. Ensure you keep diligent records of your charitable giving.
Still Confused by Taxes?
It’s okay. Taxes will always be complicated, and the more you grow your income, investments, business and family, the more involved it will get. Thankfully, you have allies at Robert L. Coval, CPA. Our mission is twofold: help you understand the tax code and how it affects you, and make sure you get the most out of each year’s tax return. Stop worrying about your taxes and contact us today!