While the changes to the current tax laws are for the years 2018 through 2025 only, they will affect how much of your income you’ll keep throughout the next eight years.
The new tax laws affect all types of families and businesses. Overall, families in lower and middle-income tax brackets will see larger tax returns and lower tax bills in 2018 and beyond. Here are a few aspects of the tax reform that you should be aware of.
Income tax rates fall
Simply put, if you make between $9,526 and $200,000 then you will have a decrease in your tax bracket from tax year 2017 to tax year 2018. A study from the Tax Policy Center estimates 80% of Americans will see a decrease in their federal tax obligation.
Standard deduction amounts increase
The standard deductions for tax year 2018 will also increase significantly. In 2017, a married couple filing jointly got a standard deduction of $12,000. The new law raises that amount to $24,000. Single filers previously who got a $6,500 deduction, will now receive $12,000. Heads of household getting a $9,500 standard deduction will get an $18,000 deduction going forward. These increases will probably lead to fewer people filing itemized returns.
Penalty for not having health insurance reduced to $0
People who don’t have health insurance in 2019 will not pay the Affordable Care Act’s tax penalty. The new laws keep the mandate in place but eliminate the fine.
The new tax law also increases the medical expense deduction from 7.5% of adjusted gross income to 10%, offering additional relief to people who have extraordinary medical costs.
Child tax credit amounts increase
Families with children under the age of 17 at the end of the year will receive a child tax credit of up to $2,000 for each qualifying child. Previously, the child tax credit was worth $1,000 for each qualifying child.
Some aspects of the previous tax code provided real financial advantages to families. Here are some things that won’t change with the new tax laws:
- Up to $10,000 in local and state taxes are deductible
- Families can still use the Child and Dependent Care Tax Credit to help defray the costs of childcare
- Homeowners with a mortgage can deduct the interest they pay
- Donations to charity are tax deductible
- The Earned Income Tax Credit is still in effect
For many Americans, the Tax Cuts and Jobs Act offers relief from tax burdens that will help them increase their economic power in the years to come.
Some tax professionals even offer tax advance loans. This allows you access to a portion of your return in the form of a loan, prior to when the IRS issues your refund.
If you have questions or are still unsure about how the reform will help you, contact a tax professional to answer your questions.
Taxes can be overwhelming. That's why we've created the Sunset Finance Guide to Tax Returns to provide more information.