The Tax Cuts and Jobs Act is over 1,100 pages long and impacts both businesses and individuals. Today, I am going to concentrate on the Basics as they pertain to the Individual Tax Payer. Not to worry, though. I will be taking a deeper dive into several provisions of the Tax Cuts and Jobs Act through out the summer, and if you are interested in particular aspects of the Act, please comment and I will go there.
As you can imagine, with over 1100 pages, this was a very long and confusing read! Here, check it out for yourself. https://www.congress.gov/115/bills/hr1/BILLS-115hr1enr.pdf
With so many changes, where should I start? Well, the Tax Cuts and Jobs Act (TCJA) also known as the 2018 Tax Reform starts with tax brackets, so let’s start there.
Simply put, all across the board, tax rates are down.
|Single and Married Filing Separately|
|Income up to $9,525||Income up to $9,525|
|Over $9,525 to $38,700||Over $9,525 to $38,700|
|Over $38,700 to $93,700||Over $38,700 to $82,500|
|Over $93,700 to $195,450||Over $82,500 to $157,500|
|Over $195,450 to $424,950||Over $157,500 to $200,000|
|Over $424,950 to $426,700||Over $200,000 to $500,000|
|Over $426,700||Over $500,000|
|Head of Household|
|Up to $13,600||Up to $13,600|
|Over $13,600 to $51,850||Over $13,600 to $51,800|
|Over $51,850 to $133,850||Over $51,800 to $82,500|
|Over $133,850 to $216,700||Over $82,500 to $157,500|
|Over $216,700 to $424,950||Over $157,500 to $200,000|
|Over $424,950 to $453,350||Over $200,000 to $500,000|
|Over $453,350||Over $500,000|
|Married Filing Joint & Surviving Spouses|
|Up to $19,050||Up to $19,050|
|Over $19,050 to $77,400||Over $19,050 to $77,400|
|Over $77,400 to $156,150||Over $77,400 to $165,000|
|Over $156,150 to $237,950||Over $165,000 to $315,000|
|Over $237,950 to $424,950||Over $315,000 to $400,000|
|Over $424,950 to $480,050||Over $400,000 to $600,000|
|Over $480,050||Over $600,000|
I created these charts based on the information in the link provided above. I understand that this may be confusing, so be sure to check out my Summer Blog Series which will dive deeper into tax brackets, including real world examples. For now, understand that most everybody is in a lower tax bracket.
The next provision of the Act pertains to pass-through businesses and since I am focusing on the Individual in this blog rather than the business, I will skip past that for now. Rest assured that I have a blog planned that will go into great detail on the 20% DEDUCTION FOR QUALIFIED BUSINESS INCOME OF PASS-THRU ENTITIES.
So, back to the Individual!
I am sure you have probably heard that the standard deduction has doubled and that the personal exemption is repealed. But what does this mean? Well, it means that a lot of people who have itemized in the past will not be doing so any longer, at least not until 2025 when these provisions are set to “sunset” or expire. Why will a lot of people no longer be itemizing their deductions? Well, that is because you can take EITHER the Standard Deduction OR you can Itemize your deductions and with the increased amount of the Standard Deduction, most people simply will not have enough itemized deductions to beat the Standard.
The standard deduction has almost doubled. For Singles, this is now $12,000, up from $6350. For Heads of Household, the amount is now $18,000, up from $9350. For Married couples filing a joint tax return, the standard deduction is now $24,000, up from $12,700. Not quite doubled…
This is disguised as a good thing. And in some cases, it is. But with the repeal of the personal exemption, it basically depends on your situation and your filing status as to if this is good or bad. My very next blog (already written) will go into detail, giving real world examples.
More good things for families! The Child Tax Credit has been modified in a couple of ways. First, and most exciting, is the amount of the credit has increased from $1,000 to $2,000 per child. There are some rules as to who can claim the Child Tax Credit, such as age and income limitations. This credit reduces tax and once tax is reduced to zero, up to $1,400 of any remaining amount (per child) of the credit is refundable.
There is also a NEW CREDIT for families. We now have a nonrefundable $500 family credit for “other dependents” such as an aging parent who depends on you for care or for your child who is over 17.
Huge changes for itemized deductions!
You’ve probably heard of the SALT limitations by now.
State And Local Tax deductions were previously basically unlimited, and here in CA, that was a very good thing. Now, though, we are limited to a total of $10,000 deduction for all combined state and local taxes. This includes income and property taxes. California has among the highest taxes in the nation. CA’s base sales tax rate of 7.25% is higher than that of any other state, and its top marginal income tax rate of 13.3% is the highest state income tax rate in the country. This means that in CA, we commonly exceed $10,000 in state and local taxes. This is a huge deal for Californians! More to come on this subject.