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Tax Law Changes

New Tax Provisions Begin in 2018

 

The tax stipulations listed below began on January 1, 2018, after the Tax Cuts and Jobs Act was signed into law in December 2017. Here are facts about the major elements of the new tax plan and how they will impact you as an American taxpayer.

  • Personal income tax rates decrease for most taxpayers

There are still seven tax brackets, but the income tax rates are reduced in five of them. An estimated 80 percent of taxpayers get a tax cut under the new rates. For a typical family of four that earns the national median income of $73,000, their tax bill will be cut by $2,059.

  • The Standard Deduction almost doubles

For individuals, the standard deduction increases from $6,350 currently to the new amount of $12,000. For married couples, it increases from $12,700 to $24,000.

  • The Personal Exemption is eliminated

As a taxpayer, you were allowed a $4,050 Personal Exemption for yourself, your spouse, and each of your dependents. Under the new tax law, the Personal Exemption is no longer available, with the idea that other provisions of the law will offset this lack of tax relief.

  • Corporations get a tax cut

The corporate tax rate decreases from 35 to 21 percent with the expectation that American companies will invest the savings in growth opportunities and creating new jobs and will bring home foreign earnings.

  • In 2019, if you don’t have health insurance, there will be no penalty

Beginning in 2019, the Affordable Care Act’s individual mandate will no longer exist. If you don’t have health insurance then, you won’t have to pay a penalty. But please remember that the ACA laws for 2017 and 2018 are still in place, so make sure you have healthcare coverage now to avoid fines.

  • The Mortgage Interest Deduction remains

For all homeowners with existing mortgages, there aren’t any changes to the current Mortgage Interest Deduction. For those with new mortgages on a first or second home, the Mortgage Interest Deduction is available for mortgages up to $750,000, down from the previous limit of $1 million. However, home equity loan interest is no longer deductible for anyone.

  • The Alternative Minimum Tax (AMT) still exists for individuals

Commonly known as a supplemental tax on those with higher incomes to offset the benefits they could receive on the standard income tax, the Alternative Minimum Tax (AMT) is eliminated for corporations, but it remains for individuals. The exemption is raised to $70,300 for single taxpayers (up from $54,300 previously) and $109,400 for married couples (up from $84,500).

  • The Child Tax Credit is doubled

Taxpayers are able to claim a $2,000 Child Tax Credit (previously $1,000) for each qualifying child under the age of 17. This tax credit applies to both single filers and married couples and is fully refundable up to $1,400. Other family-related deductions like the Child and Dependent Care Tax Credit and the Adoption Tax Credit are preserved.

  • The Earned Income Tax Credit is maintained

For low-income taxpayers, the Earned Income Tax Credit stays the same to continue to provide much-needed tax relief.

  • Estate tax exemption levels are increased

The estate tax stays at 40 percent, but the exemption levels are doubled from the previous $5.49 million limit for individuals and $10.98 million for married couples to $10.98 million and $21.96 million respectively.

  • State and Local Tax Deductions (SALT) still apply

Under the new law, individuals and families can still deduct up to $10,000 in local property taxes and state and local income or sales taxes.

  • Student loans aren’t treated differently

The previous deductions for student loan interest are kept in the new tax law, and tuition waivers for graduate students remain tax free.

  • Medical expense deductions increase

The new tax law allows taxpayers to deduct medical expenses exceeding 7.5 percent of their adjusted gross income, which helps those with expensive medical bills.

 

Even though the new tax legislation is designed to make filing taxes simpler, there are many changes that affect how much you pay in taxes. Be sure to consult a tax professional who can help you get every deduction and tax credit you deserve so you don’t wind up paying more than you should.