Analyzing The Impact of the Tax Cuts & Jobs Act
Now that the Tax Cuts and Jobs Act is in effect, there are a lot of changes for taxpayers to understand. Luckily for you, “tax” is our second language! The slideshow below will provide you with some great insight into the legislation, which will help as you go about filing your 2018 tax returns!
Tax Rate Deductions
The focal point of the TCJA is the reduction of individual tax rates. While the number of tax brackets have remained at seven, each rate has slightly decreased with accompanying charges to the base rates. These tax rates are progressive, meaning the taxes you pay will increase as your income increases.
The standard deduction increases across the board.
- Married Filing Jointly/Surviving Spouse: $24,000
- Heads of Household: $18,000 Single: $12,000
- Married Filing Separately: $12,000
The deduction for the elderly and the blind remains and unchanged and is added to the standard deduction.
The TCJA repealed the personal exemption and changed the filing requirements. Now, you won’t have to file until your gross income for the year exceeds the standard deduction. The rules for withholding income tax is adjusted to reflect this change.
The TCJA has altered itemized deductions with some being completely eliminated.
- Pease Limitation: The Pease Limitation has been totally repealed (until 1/1/2026)
- Medical Expenses: For 2018, medical expenses are deductible once they exceed 7.5 percent of adjust gross income. In 2019, the threshold will jump up to 10 percent of adjusted gross income.
- Home Mortgage Interest: Only mortgage interest to acquire, construct or improve a primary residence or second home is included in the deduction. Also, acquisition indebtedness is now $750,000 for new mortgages, and special rules apply to home equity indebtedness.
Alternative Minimum Tax
The Alternative Minimum Tax (AMT) is calculated using a different set of tax rules. Per AMT rules, the taxpayer is responsible for whatever is higher, AMT or regular income tax. Overall, the calculation rules have remained the same, but the exemption and phase-out amounts have been modified.
Child Tax Credit
Under the TCJA, the child tax credit will double to $2,000 per qualifying child under the age of 17, with up to $1,400 being refundable for those who don’t fully utilize the $2,000 per child. Additionally, the credit will be available to more households because of the boost to the phase-out thresholds. ChildTax Credit
Other Important Provisions
The following rules will also have a substantial effect on individual filers: The 529 College Savings Plan will continue to be withdrawn tax-free if used for higher education expenses. Now, $10,000 per year can also be used to help pay for elementary or high school education at private and religious schools. Like-kind exchanges are limited to real property not available for sale. The Chained Consumer Price Index for All Urban Consumers will be the indicator for any adjustments. This will ultimately result in a slower adjustment for items based on the inflation rate.
Many of the provisions in the TCJA, including the standard deduction, are slated to sunset in 2025. It’s always in your best interest to work with a credentialed tax professional to help identify long-term tax saving solutions that work for you.