The New Tax Bill (The Tax Cuts and Job Act)Submitted by Financial Advisor Timonium MD | Paladino Financial Group on January 1st, 2018
Here are some basic items regarding the new income tax bill (The Tax Cuts and Job Act). As always, consult with a tax advisor for how these relate to your situation.
- Provisions in the new tax law are effective January 1, 2018. So, they will not affect your 2017 income tax return that you will be filing shortly.
- There are still seven tax brackets for individuals, but the rates have changed.
Here's how much income would apply to the new rates:
-- 10% - income up to $9,525 for individuals; up to $19,050 for married couples filing jointly
-- 12% - over $9,525 to $38,700; over $19,050 to $77,400 for couples
-- 22% - over $38,700 to $82,500; over $77,400 to $165,000 for couples
-- 24% - over $82,500 to $157,500; over $165,000 to $315,000 for couples
-- 32% - over $157,500 to $200,000; over $315,000 to $400,000 for couples
-- 35% - over $200,000 to $500,000; over $400,000 to $600,000 for couples
-- 37% - over $500,000; over $600,000 for couples
- The standard deduction has increased. For individuals it is $12,000; for married couples filing jointly it is $24,000. This may affect whether or not you utilize the itemized deductions, as you will deduct the higher of the standard deduction or your itemized.
- For real estate and state income tax deductions that are itemized, the limit is $10,000 per year.
- For mortgage interest deduction - new mortgages on a first or second home, the interest on the mortgage loan up to a value of $750,000 can be deducted. Previously, it was $1 million. Current mortgage interest deduction is not affected. However, interest on home equity loans will no longer be deductible.
- The personal exemptions are no longer a deduction.
- The child tax credit is expanded. The credit is double to $2,000 for children under age 17 and expands the income threshold to claim it to $200,000 for single parents and $400,000 for married couples.
- The Alternative Minimum Tax (AMT) is still in effect; however, the income exemption levels are raised to $70,300 for individuals and $109,400 for married filing jointly.
- The inflation adjustment in the tax code will be measured by the 'chained CPI'. This is a slower measure than the current one and in the future will most likely cause deductions and credits to be worth less and will subject more of your income to higher rates.
- The federal estate tax exemption is raised to $11.2 million ($22,4 million for couples). This is a result of the base being raised to $10 million and factoring in inflation. Without any future changes, the exemption reverts back to $5 million in 2016. There are many opportunities for planning utilizing trusts.
- There will no longer be a penalty for not buying health insurance.
- 529 College Savings Plans can now be utilized for private and religious schools grade K through 12.and to fund expenses for home-schooled students.
- Allows for a 20% deduction on income passed through to individual owners of S-Corporations, Limited Liability Companies (LLC's), partnerships, and sole-proprietorships. There is a rule to prevent abuse of this rule.
- The corporate tax rate is reduced from 35% to 21%.
- There is a provision for companies doing business internationally to pay a one-time tax on their existing overseas profits - 15.5% on cash assets and 8% on non-cash assets (ex. equipment abroad in which profits were invested). Going forward, the U.S. would be on a territorial tax system, similar to many other countries, meaning tax is not owed on offshore income. There are provisions to prevent abuse of this.
These are only summaries of some of the new tax law. Consult with your advisor for more details.