President Trumps shake up of US tax laws is certain to affect you in some way, but the full depth of the reforms, are not yet fully understood – even by tax professionals – and just how the changes will affect individuals, is still unclear.
The new laws will be applicable to 2018’s taxes, and as the new bills are passed and become laws, here are a few things that you should know:
- Changes to individual and corporate tax rates
New legislation affecting individual tax rates is expected to be continued past the 2025 expiration date, and most of the corporate tax provisions are now permanent.
- Tax brackets
A total of 7 tax brackets are still applicable, and Americans will continue to find themselves placed in one of them, based upon their income. However, some of the rates for certain brackets have been reduced and the new rates are, 10%, 12%, 22%, 24%, 32%, 35% and 37%
Standard deductions have almost doubled, and for single filers, the standard deduction is now at $12,000 instead of $6,350, and for married couples who file together, deductions have gone from $12,700 to $24,000.
- Personal exemptions
Prior to the recent tax reforms, you could lower your taxable income by claiming a $4,050 personal exemption for yourself, your spouse and each dependant that you may have, but this is no longer possible. For many families, these changes to personal exemption will either reduce or negate the tax relief that they would otherwise get from the reform package.
State and local tax deductions, or S.A.L.T, are set to stay for those who file itemized taxes, but there is now a $10,000 cap in place, whereas previously filers were able to deduct an unlimited amount for local and state property taxes, plus income or sales taxes.
- Child tax credits
Tax credits for children under the age of 17 have now doubled to $2,000, and are now available to more people in full. Single parents earning up to $200,000 can now claim the whole credit, and those who are married and make up to $400,000.
A temporary $500 credit can now also be claimed by taxpayers for dependants who are not classed as children, such as those over the age of 17, disabled children or even elderly parents.
- Medical deductions
Deductions for medical expenses have in fact been expanded over the past couple of years, and during that period filers have been able to deduct medical expenses amounting to more than 7.5% of adjusted gross income. Before this period, most Americans could make medical deductions totalling 10% of their adjusted gross income.
There are of course, many more changes to tax laws that will come into play as the year goes on, and despite President Trump stating that tax professionals would go out of business after the reforms due to the simplicity of the new tax system, this will not prove true for some time to come, if at all. There are still many deductions to figure out and credits to make sense of, and for small businesses, tax filing could become even more complex than before.
If you’re a small business owner and are struggling to make sense of the new tax laws, don’t wait until it’s too late; contact your local tax professional and seek advice and guidance well in advance of the new tax year.