Tax Cuts and Jobs Act of 2017- How Does It Affect You?
Well, it’s finally here. The Tax Cuts and Jobs Act of 2017. I just want to clarify what some of the more relevant changes are for the average taxpayer.
Brackets - The 10% stayed the same. The 15% changed to 12%. The 25% changed to 22%. The 28% changed to 24% with a much expanded range. This covers taxable income up to $315,000 so let’s just stop there.
Standard Deduction and Exemptions - Doubled the Standard Deduction and took away exemptions. This will result in a washout for many which is the "simplification" that you've heard about.
State and Local Taxes–This deduction applies to a combination of state income taxes, sales taxes and property taxes. Under the new law it is going to be limited to $10,000. There are some planning techniques that can be utilized to maximize your deduction before the new law goes into effect.
Unreimbursed Employee Expenses – The new law does away with this deduction and will affect many taxpayers significantly.
Child Tax Credit – Doubles the credit from $1,000 to $2,000 and provides for a $500 credit for other dependents, which is new.
Healthcare – Removes the penalty of the ACA (Obamacare) for not having insurance and reduces the threshold for deducting medical back to 7.5% temporarily for 2 years. (No simplification there)
Education Credits – No changes.
Alimony Deduction – No longer deductible by payor or includable as income to the recipient. The new rule won’t affect anyone who divorces or signs a separation agreement before 2019.
Moving Expenses – Now no longer deductible.
Pass-through Businesses – Reduces business income of sole prop’s, partnerships and S-corporations by 20% that is subject to income tax, after which a lower rate of a maximum of 29.6% will be applied. (This can be quite confusing- let me know if you have specific questions).
Corporate Tax Cuts - Top rate reduced from 35% to 21%, which is significant! Remember , this applies to any C-corp regardless of size. So, there will be some benefit for small businesses that choose to be taxed as such.
There's a lot of changes and we're here to help you understand how this will impact your taxes. With questions, feel free to call our office.