Major changes to the US tax law (the biggest changes in 30 years) came through the US Congress, which means it’s time to re-strategize with your tax planner. Ensure you’re doing everything you can with 2017 taxes to take advantage of any savings that will be expiring, and push off any income that will result in more savings come 2018.
The biggest thing to notice with the changes in brackets, is that there is no longer a “marriage penalty”, meaning when incomes are combined by two income producers who get married, they no longer fall into a higher tax bracket simply because they’re married.
New Tax RatesOld Tax Rates (for comparison purposes)
Marginal Tax Rate
Single
Married Filing Jointly
Head of Household
Married Filing Separately
10%
10%
$0-9,525
$0-9,525
$0-19,050
$0-19,050
$0-13,600
$0-13,600
$0-9,525
$0-9,525
12%
15%
$9,525-38,700
$9,525-38,700
$19,050-77,400
$19,050-77,400
$13,600-51,800
$13,600-51,850
$9,525-38,700
$9,525-38,700
22%
25%
$38,700-82,500
$38,700-93,700
$77,400-165,000
$77,400-156,150
$51,800-82,500
$51,850-133,850
$38,700-82,500
$38,700-78,075
24%
28%
$82,500-157,500
$93,700-195,450
$165,000-315,000
$156,150-237,950
$82,500-157,500
$133,850-216,700
$82,500-157,500
$78,075-118,975
32%
33%
$157,500-200,000
$195,450-424,950
$315,000-400,000
$267,950-424,950
$157,500-200,000
$216,700-424,950
$157,500-200,000
$118,975-212,475
35%
35%
$200,000-500,000
$424,950-426,700
$400,000-600,000
$424,950-480,050
$200,000-500,000
$424,950-453,350
$200,000-300,000
$212,475-240,025
37%
39.6%
Over $500,000
Over $426,700
Over $600,000
Over $480,050
Over $500,000
Over $453,350
Over $600,000
Over $240,025
Personal Exemptions
A simplification that individuals will also need to be aware of, is under the old tax law, for example, a single filer would get a standard deduction ($6,500) and a personal exemption ($4,150). However now, the personal exemptions are gone, and have been replaced with a $12,000 standard deduction.
Capital Gains
Not much has changed for realizing investment profits. However, since short term capital gains are still taxed as regular income, you’ll likely see a change in this rate (and probably save some money!).
Long term capital gains tax rates are as follows:
Long Term Rate
Single
Married Filing Jointly
Head of Household
Married Filing Separately
0%
Up to $38,600
Up to $77,200
Up to $51,700
Up to $38,600
15%
$38,600-425,800
$77,200-479,000
$51,700-452,400
$38,600-239,500
20%
Over $425,800
Over $479,000
Over $452,400
Over $239,500
Child Tax Credit
The removal of the personal exemption could affect larger families, so to make up for this, the child tax credit for kids under 17 has doubled to $2,000, and is available for families with incomes of $400,000 (married filing jointly) and $200,000 (individuals).
529 College Savings Plan
This education savings fund has been expanded to include education other than college. You may now use these savings to pay for private school and tutoring up to 12th grade.
Mortgage Changes
For mortgages taken after Dec 15, 2017, mortgage interest deductions can only be taken on debt up to $750,000, and interest on home equity debt cannot be deducted anymore. This could be in an effort to motivate people to pay off their debts sooner!
Charitable Contributions
Two changes here. Donations are deductible up to 60% of your total income (up from a maximum of 50%). You can also no longer deduct donations made to a college for the purpose of buying sports tickets.
Medical Expenses
Previously the deduction allowed was 10% of your adjusted gross income, and this has been reduced to 7.5%. This means if your income is $50,000, you can deduct any un-reimbursed medical expenses past $3,750 (rather than the previous $5,000). This is active for the 2017 tax year.
While many deductions have been cut out, because the standard deductions have increased so much, most people will not find it worthwhile to itemize this year.
Small Businesses – Sole Proprietorships, LLCs, Partnerships, S Corps
These business structures utilize what is called pass-through business income, where the income passes through the business and is then taxed as income for the owner. In 2018, these businesses will be able to deduct 20% of this income before applying it to their tax brackets. This deduction phases out at $157,500 (individuals) and $315,000 (joint filers).
To find out more about these tax changes and ask any questions you may have, contact D&M Accounting and we’ll be happy to assist!
