The new tax law, passed by the House on December 20th, 2017, is a sweeping tax reform measure that was passed by a vote of 224 to 201. It’s one of the biggest tax reforms of our generation; this article, Part 2 in my series, will outline some of the changes that could likely affect your tax bill.
The new Tax Cut and Jobs Act of 2017 is a vast new tax reform that affects nearly all of American taxpayers. When the bill was being debated, we heard that we would see just 4 tax rates ranging from 12 – 39.6%. This would have been a reduction from the 7 tax brackets in place under the old law ranging from 10 -39.6%.
Under the new law, we have 7 tax brackets ranging from 10 – 37%. While it may not sound like there’s much difference here, the shrinking or expanding of the brackets can have an impact on your tax bill. In other words, how quickly your income becomes taxable under a new higher rate can change your overall tax calculations.
One of the biggest changes under the new law is the significant increase in the standard deduction. For tax years beginning January 1, 2018 and ending by December 31st, 2025, the standard deduction is increased to $24,000 for married individuals filing a joint tax return, previously $12,700 for the 2017 tax year.
The new standard deduction is increased to $18,000 for head of household filers, previously $9,350 and $12,000 for all other tax payers such as single and married filing separate statuses. There are no changes to the additional standard deduction for the elderly and blind under the new law.
The suspension of the personal exemption may come as a surprise for some taxpayers – and not a good surprise. This was generally an allowed deduction of $4,050 for the taxpayer, the taxpayer’s spouse and any dependents. This could be painful for families with 4 or more exemptions, even with the increase in the standard deduction.
To help businesses apply recent law changes to withholding, the Treasury Department and the Internal Revenue Service issued Notice 2018-14 and Publication 15, Employer’s Tax Guide. These materials are designed to help employers and employees with a variety of withholding matters during and after the transition to new, reduced tax rates and updated withholding tables. Be sure to watch my video series for more information and analysis of the new tax law. You can also visit my website at actservices-inc.com.
