With President Trump’s signature the Tax Cut and Jobs Act is now law and described as the most significant overhaul of the American tax system in decades. Here are some of the changes to the tax code that you can expect to see when it comes to filing your 2018 taxes.
How Will the Tax Cuts and Jobs Act Impact Me?
There will be a change in most of the seven tax brackets in 2018. The personal tax brackets will be as follows: 10%, 12%, 22%, 24%, 32%, 35% and 37%. Small business owners who are setup as S-Corporations or Limited Liability companies and receive pass-through income via a K-1 or form 1065, will be allowed to deduct 20% of their income prior to applying the personal income tax rates up to certain qualifying income limits, and the corporate rate will be cut from 35% to 21%.
Other features of H.R. 1, Tax Cuts and Jobs Act, will be to double the standard deduction to $12,000 for single filers and $24,000 for married filing jointly, but completely eliminate personal exemptions. State, local and property taxes deductions for those itemizing will be capped at $10,000. It also expands the medical expense deduction for two years for filers meeting that threshold from 10% AGI to 7.5% AGI. Mortgage interest will be deductible for mortgages up to $750,000. The child tax credit will increase from $1,000 to $2,000 per child under 17 years of age with $1,400 of the $2,000 potentially refundable. Filers with dependents who do not qualify for the child tax credit will be able to claim a $500 credit for each dependent. The bill also repeals the individual mandate to purchase health insurance beginning 2019.
Use this tax calculator tool to help estimate your potential 2018 income tax liability under the new plan.
What Are Some of the Other Changes of the Trump Tax Reform?
President Trump has also promised that filing taxes will be simpler and that some filers will be able to complete their taxes on a single postcard. The goal of this change is to streamline the filing process and to make taxes less confusing for Americans. This bill doesn’t simplify for all, but with exemptions gone and deductions limited, many filers may take the standard deduction instead of itemizing which would make filing less complicated.
How Will the Trump Tax Plan Affect Me?
If you own a corporation, you will see a significant corporate tax cut with the rate dropping from 35% to 21%. If you rely heavily on personal deductions to reduce your tax rate, you could possibly pay more in taxes. However, this can be offset by the increase in child credits. Deductions will still include charitable donations, retirement savings, student loans, excessive medical expenses as well as the limited, but still significant deductions of state and local taxes, property tax, and mortgage interest. You can run our calculator to see if you should itemize or take the standard deduction.
Additionally, with the repeal of the Affordable Healthcare Act tax, you will not have to pay the government if you are uninsured.
Money Help Center will continue to update as new information becomes available, so you can evaluate how your tax obligation may change with the reforms.