What The New Tax Laws Mean For You

If you’re like the average American, you find the science of income taxes complex, and in a word–taxing. You may have found yourself in debates about the fairness of taxes, and trying to figure out what the new tax laws mean for you personally. While there has been much back and forth in Washington about how to roll out the new tax laws, one thing is for certain–2018 will be different for all of us.

Taxes have an impact on almost every aspect of our lives. I often joke that even if you sneeze, there is a tax implication. Get it?! Because there may be a deductible medical expense.  Ha ha ha. Ok, well I thought that was funny, but I will keep my day job. A job which includes providing you with information necessary to make informed decisions about your taxes.

It is important to us at Desnoyers CPA, LLC that you have a clear understanding of how the new tax laws will affect you in the coming years so we put together a summary highlighting some key changes:

  • Tax Brackets and Rates – Tax rates are expected to go down overall so if there is a possibility of deferring income (i.e., bonuses, sale of appreciated stock, etc.) from 2017 to 2018, you may want to consider doing so if there is an overall net benefit. The new tax rates are as follows:
New Law Current Law
Tax Rate Individuals Married Couples Tax Rate Individuals Married Couples
10% First $9,525 $19,050 10% First $9,325 $18,650
12% Above $9525 $19,050 15% Above $9,325 $18,650
22% Above $38,700 $77,400 25% Above $37,950 $75,900
24% Above $82,500 $165,000 28% Above $91,900 $153,100
32% Above $157,500 $315,000 33% Above $191,650 $233,350
35% Above $200,000 $400,000 35% Above $416,700 $416,700
37% Above $500,000 $600,000 39.6% Above $418,400 $470,700

To see how your paycheck will be impacted by the new law, click here.

  • Elimination of personal exemptions and increase in standard deduction Under current law, $4050 per person (i.e., taxpayer, spouse, and dependents) can be deducted from income on a tax return. The new tax plan will eliminate that deduction. On the other hand, the standard deduction will increase from $12,700 to $24,000 for married couples filing jointly and from $6,350 to $12,000 for individuals. The additional standard deduction for the elderly and the blind is unchanged.
  • Changes in itemized deductions With the increase in the standard deduction, some taxpayers may find it more beneficial to forego itemizing. In fact, the benefits of itemizing may be less attainable due to the following changes:
    • There will be a $10,000 cap on the combined amount of property and state income taxes or property and sales tax if you live in a state that does NOT have state income taxes. With that, if you are able to pay your 2018 property taxes by December 31st, 2017, you can get double the benefit on your 2017 tax return (you do want to make sure your itemized deductions for 2017 are not subject to limitations first).
    • Interest on primary mortgages remain deductible; however, the interest on home equity loans will no longer be deductible. Also, for new mortgages on primary and secondary homes, only the interest on the first $750,000 loan will be deductible – down from $1,000,000.
    • Charitable deductions will remain deductible and although there are no changes in and of itself, people may find themselves benefitting more from using the increased standard deduction, thereby losing the benefit of making charitable contributions throughout the year.
    • On the bright side (or not), it will be easier for people of all ages to deduct medical expenses as the threshold to deduct those out-of-pocket expenses goes back to the pre-Affordable Care Act rate of 7.5%. Under current law, medical expenses must exceed 10% of the adjusted gross income (or AGI) for the 1st dollar to be deductible for those who are under the age of 65. This change is temporary and will expire after two years.
  • Taxpayers with income from partnerships and S-Corporations (i.e., Flow-Through income), will be able to deduct 20% of their income from the first $315,000 of joint income ($157,500 for single individuals).
  • Increase in child tax credit – The child tax credit which is a dollar-for-dollar reduction in taxes increases from $1,000 to $2,000 per child under the age of 18. A substantial portion of that credit is refundable–meaning even if there is no tax liability, a taxpayer may get a refund of up to $1,400. The credit begins to phase out when income exceeds a certain threshold.

Important Dates to Keep in Mind

  • January 1st, 2018 – Changes to individual taxes will take effect, meaning you will see these changes on your 2018 tax return which will be prepared in 2019.
  • February 2018 – The IRS will provide guidance on how employees can update their federal income tax withholdings from their paychecks.
  • December 2025 – Unless the administration of 2025 enacts new laws, most of the changes of this tax reform that impact individuals will expire by the end of 2025.

The Senate and House versions of the bill were reconciled on Friday, December 15, 2017, and it is expected to be signed into law before Christmas. As the changes begin to take effect, you can rest assured that our offices will be abreast of the latest developments, ensuring that our clients receive the best results on their income taxes, and have a clear understanding of what this all means. It is never too soon to start planning and we encourage you set up an appointment to do some tax planning for the coming years.

Disclaimer: The content contained in this blog is for informational purposes only and should not be taken as professional legal or tax advice. You are encouraged to contact your tax professional or set up an appointment with our offices for specific advice.

Written by Desnoyers CPA

Desnoyers CPA

Known for her friendly, outgoing nature and her rare talent for financial foresight, Lydia Desnoyers has been serving individuals and small businesses in Florida since 2010. After earning her Master’s Degree in Accounting from Nova Southeastern University and her Bachelor’s Degree in Accounting from Florida State University, she became a Certified Public Accountant and a Certified Fraud Examiner.

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