2017 has come to an end. Joining us for the new year is new legislation in tax laws which will take effect this year. Not to worry, listed below are some of the nuances of 2018’s new tax laws and how they may affect you.
Lower Tax Rates and Corresponding Income Ranges
One of the foremost subjects regarding 2018’s tax reform legislation is that which involves tax brackets and income ranges. A tax bracket refers to specific ranges of income and the corresponding tax rate. Marginal tax rates apply to different levels of income. The higher the income the greater the tax rate. The bill retains the seven tax brackets found in current law; however, it lowers many of the tax rates. It also has changed the income threshold at which these rates apply.
|2017 Tax Rate||2017 Income|
|2017 Income |
(Married Filing Jointly)
|2018 Tax Rate||2018 Income|
(Married Filing Jointly)
|10%||$0 - $9,325||$0 - $18,650||10%||$0 - $9,525||$0 - $19,050|
|15%||$9,326 - $37,950||$18,651- $75,900||12%||$9,526 - $38,700||$19,051 - $77,400
|25%||$37,950 - $91,900||$75,901 - $153,100||22%||$38,701 - $82,500||$77,401 - $165,000|
|28%||$91,901 - $191,650||$153,101 - $233,350||24%||$82,501 - $157,500||$165,001 - $315,000|
|33%||$191,651 - $416,700||$233,351 - $416,700||32%||$157,501 - $200,000||$315,001 - $400,000|
|35%||$416,701 - $418,400||$416,701 - $470,700||35%||$200,001 - $500,000||$400,001 - $600,000
|39.6%||more than $418,400||more than $470,700||37%||more than $500,000||more than $600,000|
Alternative Minimum Tax Exemption
The Alternative Minimum Tax Exemption (AMT) was initially designed to prevent wealthy taxpayers from exploiting loopholes in order to avoid paying taxes. Unfortunately, it was never updated for inflation. Consequently, many middle-class taxpayers suffered the burden of annual AMT. The new bill eases the burden by raising the income exempted for married filing jointly from $84,500 to $109,400 and for single taxpayers from $54,300 to $70,300.
Increased Standard Deduction
The Standard Tax Deduction is also set to ease the burden of taxpayers’ obligations. The new law nearly doubles the standard deduction amount. Single taxpayers can expect to see their standard deductions increase from $6,350 to $12,000 in 2018. Married couples filing jointly will see an increase from $12,700 to $24,000.
Increased Child Tax Credit
In 2017, parents whose income was under $110,000 jointly and $75,000 individually could receive a Child Tax Credit of $1000 per child. In 2018 that number will increase from $1,000 per child to $2,000. Furthermore, the 2018 reform has increased the income limits to $400,000 jointly and $200,000 individually.
Previously, the law allowed homeowners to deduct the interest paid on their primary residence up to a maximum of $1 million in mortgage principal. The new maximum in 2018’s reform sets a cap at $750,000.
Small business owners benefit from kinder tax treatment in 2018. Such changes include a 20% deduction for qualified business incomes from pass-through entities (partnerships, S Corps, sole proprietorships) and increased limits on expensing of interest from borrowing which nearly doubles the amount small businesses are able to expense, as well as eliminating the corporate alternative minimum tax.
We know taxes can be confusing. It is important to have your questions answered and ensure you are on a path to success. We do not want you to have a surprise tax bill come this time next year, so we invite you to come in for a meeting to discuss your particular situation.