On December 22, 2017, the Tax Cuts and Job Legislation Act was signed, and it includes several changes that are pertinent to individuals and businesses.
Here are some of the ways that this new law may affect you personally and professionally.
Individual Income Tax
There are still seven income brackets, though tax rates vary slightly from preexisting-law to new law. More specifically, the brackets were 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%, and will now be 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
Standard Deduction, Itemized Deductions, and Personal Exemptions
Compared to pre-existing law, the standard deduction will increase considerably under the new law.
If you are married and filing jointly, your deduction will change from $13,000 to a $24,000; head of household goes from $9,550 to $18,000; and if you are single or married, but filing separately the difference is $6,500 under pre-existing law vs. $12,000 for the new law.
While additional deductions will remain available for individuals that are older than 65 or blind, there will no longer be personal or dependency exemptions.
Furthermore, itemized deductions will be significantly impacted, and many will be restricted or eliminated under the new law. This change will affect deductions for medical expenses, state and local taxes, home mortgage interest, investment interest, charitable gifts, casualty and theft losses, and job expenses.
Child Tax Credit
Under the Tax Cuts and Job Legislation Act, the child tax credit will double from $1,000 to $2,000. The new law also allows for a $500 credit for non-child dependents.
Additionally, the income threshold for phasing out the credit will also increase. For single/head of household it will change from $75,000 to $200,000; for those that are married and filing jointly it was $110,000 and will now be $400,000; and married and filing separately threshold goes from $55,000 to $200,000.
Individual tax payers that receive business income from an S corporation, sole proprietorship, or partnership, can deduct 20% of this money, excluding compensation, under the new law.
Certain limitations are placed on this deduction for service businesses (i.e. doctors or lawyers) with income over $157,500 if filing individually or $315,000 if married and filing jointly.
Moreover, corporate income will be taxed at a rate of 21% under the new law.
To learn more about how the new tax law will affect you, your family, and business, please call Blisk Financial Group today to schedule a consultation.