The new tax plan that Congress passed in December has been a topic of confusion and tension since it’s introduction. With it comes many changes including new tax rates, elimination of some exemptions, an increase in deductions, and shifts in how much is taken from your paycheck.
As we mentioned in our last post, one significant difference in the tax code is the tax rate. While we still maintain seven tax brackets, the rates have lowered slightly. This may shift the amount you have to pay in income tax.
The new tax bracket is
Single Married, Joint Filer
- 10% $0-$9,525 $0-$19,050
- 12% $9,526-$38,700 $19,051-$77,400
- 22% $38,701-$82,500 $77,401-$165,000
- 24% $82,501-$157,500 $165,001-$315,000
- 32% $157,501-$200,000 $315,001-$400,000
- 35% $200,001-$500,000 $400,001-$600,000
- 37% $500,001+ $600,001+
Several deductions have changed under the new tax bill. These deductions include the personal and joint deductions (raised to $12,000 and $24,000 respectively) and the local and state deductions (have been capped at $10,000). Homeowners will see Mortgage Interest Deduction lowered to $750,000 or less and those with hefty medical expenses will find medical expense deductions reduced from 10% of the taxpayer’s adjusted gross income to 7.5%. Teachers, on the other hand, will be happy to see that the bill increased the deduction for teachers and their expenses for school supplies.
A few things have been left on the cutting room floor after the tax bill passed. The most notable for business owners is the Corporate Alternative Minimum Tax. For large businesses, this applied a 20 percent rate as part of a parallel tax system that limits tax benefits to prevent large-scale tax avoidance. Also repealed was the Obamacare Individual Mandate, which required those who did not purchase health insurance to pay a penalty fine.
Tax Season 2018
Before you begin to panic about this wave of new information that you need to know for tax season, please keep in mind that the changes made in the tax bill will barely affect the taxes you file in April. Since the bill passed in December of 2017, it will not have any significant effect on the taxes based on your 2017 income. Most shifts in your taxes won’t occur until you file your 2018 income next year. So, you still have time to do your research and understand how the tax bill will affect you and your family.