Congress passed and President Trump recently signed into law a sweeping tax bill. The Tax Cuts and Jobs Act (H.R. 1) went into effect on January 1, 2018. The first thing to know about the bill is that it won’t affect your tax filings for 2017, so proceed as usual when filing tax returns this season. New tax rules could affect paychecks in the coming months and will be most applicable when filing 2018 returns next year.
Here are some key provisions of the new tax bill and what it means to you:
- Tax rates have been lowered. U.S. taxpayers will still into one of seven federal income tax brackets. However, income tax rates have now decreased in most brackets. Tax rate percentages have changed from previous 10%, 15%, 25%, 28%, 33%, 35%, and 39.6% to 10%, 12%, 22%, 24%, 32%, 35% and 37%. To learn more and find out what tax bracket you are in, see IRS Notice 1036.
- Paychecks could see a boost now. Employers were required to start implementing the new tax percentages mentioned above no later than February 15, 2018, which means most U.S. workers should start seeing an increase in their paychecks going forward as less is being withheld for taxes.
- The standard deduction has nearly doubled. Taxpayers have the option to take a standard deduction or to itemize their tax returns to reduce overall tax liability. The previous standard deduction was $6,350 for single filers and $12,700 for married couples filing jointly. The standard deduction will now increase under the new tax law to $12,000 for single filers and $24,000 for married couples filing jointly.
- The personal exemption has been eliminated. Previously, you could claim a personal exemption for yourself, spouse, and dependents to lower your taxable income $4,050 person. However, the personal exemption is no longer allowed under the new tax bill.
- Individual tax cuts are temporary. Most tax breaks for individuals as outlined are set to expire in 2025, unless there is future action by Congress to extend or make provisions permanent.
There are a lot more changes as a result of the new tax bill including provisions that affect corporate tax rates, estate taxes, home mortgage interest deductions, child tax credits, healthcare mandate penalty taxes, retirement plans, saving for education and more. Consult an accountant or tax law attorney in your area if you have questions or need more information.
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