Updates Affecting All Taxpayers

Updates Affecting All Taxpayers

  • The individual tax rates have been lowered beginning with 2018.
    • Under the new law, the marginal tax rates range from 10% to 37%.
    • The marginal rates under the prior law were 10% to 39.6%.
    • Under the new law, the rate thresholds that apply to taxpayers filing married filing jointly are twice those of single taxpayers, effectively eliminating the federal marriage penalty.
  • For months after December 31, 2018, the individual healthcare mandate (known as the shared responsibility payment) has been repealed.
  • Beginning with 2018, personal exemptions have been suspended. For larger families, this largely offsets the benefit of the increased standard deduction available in 2018 as well.
    • This will impact the amount of taxes withheld from salaries and wages.
    • For 2018, wage withholding rules are permitted to remain the same as prior years when personal exemptions applied.
  • The Child Tax Credit has been modified for years 2018 through 2025.
    • The credit has been increased to $2,000 for each qualifying child, with up to $1,400 being refundable.
    • For non-child qualifying dependents, a $500 nonrefundable credit applies.
    • The increase in the child tax credit helps to offset the repeal of personal exemptions for the foreseeable future.
  • The standard deduction will be increased in 2018:
    • For single filers, the standard deduction will now be $12,000.
    • For married filing joint filers, the standard deduction will now be $24,000.
    • With the increase in the standard deduction, far fewer taxpayers will benefit from itemizing their deductions as they may have done in the past.
  • For those taxpayers that are still able to itemize deductions, many of the items formerly deductible have been repealed or are subject to new limitations. Some of these are:
    • State and local income taxes and real estate taxes are limited to $10,000.
    • Any deductions that were subject to the 2% floor of a taxpayer’s adjusted gross income are no longer permitted.
    • The rules for mortgage interest and indebtedness thresholds have been modified and are outlined below.
    • The adjusted gross income threshold for medical expense deductions has been reduced for all taxpayers to 7.5% for years 2017 and 2018.
  • Beginning in 2018, funds from college savings accounts (known as §529 Plans) can now be used for elementary or secondary education expenses. This is expanded from the previous rules which required funds to be used for “qualified higher education expenses,” i.e. colleges.
  • Certain business owners are now eligible for up to a 20% deduction of qualified business income from pass-through business entities which is discussed further below.

***Disclaimer: I am a tax accountant and a CPA licensed in Massachusetts , but I am not your accountant or advocate (Unless you have signed up to my services). This communication is not intended as tax advice, and no tax accountant -client relationship results**

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