By Mark Sipos
The Tax Cuts and Jobs Act of 2017 is the most sweeping change to the tax code in over 30 years. Understanding these new tax laws and working proactively within them can save taxpayers thousands of dollars. We would like to highlight the major changes of this new tax legislation and how it impacts individual taxpayers.
President Trump’s tax plan calls for maintaining the seven brackets found under the old law, however, the new law reduces the rates 2-3% across the various bracket income levels. It’s worth noting that the new tax brackets have dramatically increased the income levels within each bracket, so more of your taxable income will be taxed at lower tax rates!
There are deductions to consider as well. Changes are coming for taxpayers who take the standard deduction and for those who itemize. The Trump tax plan increases the standard deduction to $12,000 (for individuals) and $24,000 (for married couples fling jointly), effectively
doubling these standard deductions under the old law.
Taxpayers who itemize can write off their state and local income, property and general sales tax payments on their federal tax return. This effectively prevents double taxation. Starting in tax year 2018, that deduction is capped at $10,000.
Under prior law, homeowners could deduct their mortgage interest payments on mortgages up to $1 million. The new tax plan limits the deduction for mortgages up to $750,000. Interest on home equity lines can no longer be deducted unless the money is directly used to substantially improve your residence. This new law is retroactive, so existing home equity lines will be affected.
The new act also eliminates the following itemized deductions: moving expenses (except for military personnel), fnancial advisor and tax preparation fees, home offce deductions, and employee business expenses. Also beginning in 2019 – alimony will no longer be a deduction,
nor will it be required to be claimed as income by the spouse receiving it. This law is in effect for any divorces fnalized and signed in 2018.
The new law does retain the medical deduction of allowing medical expenses of
7.5% or more of adjusted gross income through 2018. The threshold then increases
to 10% of adjusted gross income starting in 2019. It expands the charitable deduction
from 50% of adjusted gross income to 60%. The new legislation retains the deduction for student loan interest and retirement savings. The Act also expands the 529 savings plans for tuition at private and religious K-12 schools and some home schooling expenses. Ohio also expanded it’s 529 plan tax deduction from $2,000 to $4,000 per child, per year.
Personal exemption deductions have been eliminated. To compensate for this, the new tax law has expanded the Child Tax Credit. The Trump tax plan increases this credit to $2,000 for children under 17 (doubled from $1,000). Filers may claim the full credit if they have income up to $200,000 for single flers (up from $75,000) and up to $400,000 for married couples (up from $110,000). The new law also expands this credit by allowing a $500 tax credit for each non-child dependent. These include elderly parents and children over 17 years of age.
Taxes can get confusing quickly and considering the new tax plan could potentially affect what you pay by thousands of dollars. You want to make sure to consult a tax professional as soon as possible so that appropriate strategies can be implemented.