How does the new tax law affect you? When Congress passed the Tax Cuts and Jobs Act in December, it significantly changed existing tax law. Now that you’ve finished up your 2017 tax return, it’s a good time to consider what the new legislation will mean to you, says the Pennsylvania Institute of Certified Public Accountants (PICPA). Here are a few key issues you should know about.
Tax Brackets Have Changed
You may be in a new tax bracket beginning in 2018, depending on your income and other factors. The tax brackets for single and joint filers are now 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent, and 37 percent. The top rate is down from 39.6 percent, and rates are generally lower at various income levels. The range of income that falls into each bracket has also changed, so check with your CPA to find out how your own situation has been affected. The corporate tax rate has also changed, from a top rate of 35 percent to one rate of 21 percent.
Doubled Standard Deduction
In another important change, the standard deduction—the amount you can deduct from your income instead of itemizing deductions—has nearly doubled: $12,000 for single filers and $24,000 for married couples filing jointly.
Those taxpayers whose new standard deduction is larger than their total itemized deductions may no longer need to itemize deductions on their tax return.
No Personal Exemption
Beginning in 2018, taxpayers can no longer take the $4,050 personal exemption for themselves and their dependents. The loss of exemptions may be offset by the higher standard deduction. Additionally, the loss of exemptions may mean that taxable income levels could go up for larger families or single parents.
For those taxpayers with larger families, the maximum child tax credit has been doubled to $2,000 per qualifying child. The phase-out threshold for the credit—basically the top income limit to qualify—has also been raised, beginning after income levels of $400,000 for married filing jointly and $200,000 for all other taxpayers.
Limits on Popular Deductions
Taxpayers in some high-tax states should be aware of the new limit on the total deduction for state and local sales, income, and property taxes. Under the new tax law, there is a $10,000 deduction limitation. Furthermore, if you’re planning to take out a large mortgage soon, there will be a cap on the size of the mortgage on which you can deduct interest. Interest is now deductible on up to $750,000 in mortgage debt, down from $1 million. This limit does not apply to mortgages in place before Dec. 15, 2017. Home equity loan interest is no longer deductible.
Individual Health Care Mandate Dropped
Starting in 2019, individuals who don’t have health insurance will no longer have to pay a penalty. Although Congress included a repeal of this fine in the tax bill, it won’t take effect until 2019, which means the penalty would still apply for 2017 and 2018 tax returns.
Your CPA Can Help You Plan for Change
These are just some of the changes under the new law. Reach out to your CPA for help in making tax planning decisions that will serve you well now and in the future, and for help with all your financial questions and concerns. To find a CPA in your area or for more financial tips, visit www.picpa.org/moneyandlife.