How am I impacted by tax reform?
The largest tax reform bill in 27 years just passed the Senate and House and is awaiting signature by President Trump. You will be filing your taxes for 2017 exactly as you have in the past, but there are some big changes that will impact what your filing looks like for 2018.
Changes have been made to both individual and corporate tax rates. Corporate provisions will be permanent, and the individual provisions will expire in 2025. For individuals there are still the same number of tax brackets, but overall the tax rates are lower.
Unmarried Individual Filers | ||||
Current | Proposed | |||
0 - $9,525 | 10% | 0-$9,525 | 10% | |
$9,526- $38,700 | 15% | $9,526 - $38,700 | 12% | |
$38,701-$93,700 | 25% | $38,701-$82,500 | 22% | |
$93,701-$195,450 | 28% | $82,501-$157,500 | 24% | |
$195,451-$424,950 | 33% | $157,501-$200,000 | 32% | |
$424-951-$426,700 | 35% | $200,001-$500,000 | 35% | |
$426,701 and more | 39.60% | $500,001 and more | 37% | |
Married Joint Filers | ||||
Current | Proposed | |||
0-$19,050 | 10% | 0-$19,050 | 10% | |
$19,051-$77,400 | 15% | $19,051-$77,400 | 12% | |
$77,401-$156,150 | 25% | $77,401-$165,000 | 22% | |
$156,151-$237,950 | 28% | $165,001-$315,000 | 24% | |
$237,951-$424,950 | 33% | $315,001-$400,000 | 32% | |
$424,951-$480,050 | 35% | $400,001--$600,000 | 35% | |
$480,051 and more | 39.60% | $600,001 and more | 37% | |
Heads of Households | ||||
Current | Proposed | |||
$0-$13,600 | 10% | $0-$13,600 | 10% | |
$13,601-$51,850 | 15% | $13,601-$51,800 | 12% | |
$51,851-$133,850 | 25% | $51,801-$82,500 | 22% | |
$133,851-$216,700 | 28% | $82,501-$157,500 | 24% | |
$216,701-$424,950 | 33% | $157,501-$200,000 | 32% | |
$424,951-$453,350 | 35% | $200,001-$500,000 | 35% | |
$453,351 and more | 39.60% | $500,001 and more | 37% |
- Standard deductions have doubled for both single and joint filers. However, the personal exemption is gone and there are fewer deductions overall.
- State and local tax deductions, i.e., property taxes, will now be capped at $10,000. Mortgage interest deductions are lowered for new home purchases, only the first $750,000 of mortgage debt will be able to be deducted - down from $1,000,000. Married couples will still be able to exclude $500,000 from capital gains as long as they are selling their primary home and have lived in it for 2 of the previous 5 years. (Single sellers can exclude $250,000)
- From an education perspective - 529 accounts will be accessible up to $10,000 annually for public and private elementary and secondary education. And the deduction for student loan interest is safe.
- Alimony payments codified in divorce agreements going to the spouse who earns less money will no longer be deductible for the person writing the check. This applies to divorce paperwork signed after Dec 31, 2018.
- Obamacare was not repealed earlier this year, but the elimination of the individual mandate will be repealed in 2019. This means no one will be penalized for not carrying health insurance. This will make health insurance much more expensive for people who chose to carry insurance. Medical expense deductions have been expanded for 2 years and are deductible when they exceed 7.5% of a person's adjusted gross income.
- The bill does not call for a repeal of the estate tax. It essentially eliminates it for all but the wealthiest of people by doubling the amount of money exempt from estate tax - $10.98 million for individuals and $21.96 million for married couples.
- The big winner in the tax reform bill are corporations. The corporate tax rate will be slashed from 35% to 21%. Multinational firms will be allowed to defer paying taxes on their foreign profits until the money is brought back into the United States. Pass through businesses, those who pay a portion of the business tax through their individual returns, will enjoy up to a 20% deduction.
This major tax reform will definitely shake up life for millions of Americans and could redistribute wealth. We all hope it spurs corporate investment in the United States and individuals ultimately benefit. Time will tell.