The Tax Cuts and Jobs Act was signed by President Trump on December 22nd and is now law! The new law makes sweeping changes to the U.S. tax code and will affect almost every taxpayer. I am working on a number of different strategies to take advantage of the new provisions and suggest sitting down to draw up an individualized tax plan to make sure you are benefiting from the new law. In the meantime, I want to bullet point some of the key provisions that are significantly different from old tax law and may allow us to really save you some bucks at tax time.
- Probably the key change in the new Act is the new tax brackets facing every taxpayer. In most cases, far more favorable. The new tax rates start at 12% and go up as follows: 22%, 24%, 32%, 35%, and the top marginal rate for high income taxpayers is now down to 37% for incomes over $500,000 for single taxpayers and $600,000 for married taxpayers.
- Corporate tax rates have been cut across the board to 21% down from 35%.
- The corporate Alternative Minimum tax has been eliminated.
- The Alternative Minimum tax that impacts individuals has been revised to include increased exemption amounts that will hopefully eliminate its application to many taxpayers.
- The standard deduction for individuals has increased significantly to $12,000 for single taxpayers and $24,000 for married taxpayers.
- The mortgage interest deduction for new mortgage debt will be truncated on debt over $750,000.
- The deduction for state and local income tax payments and real estate tax payments will be capped at $10,000.
- Deductions for charitable contributions remains unchanged.
- The penalty under Obamacare for failing to have insurance has been eliminated.
- The benefits of section 529 plans, formally used exclusively for college expenses, is now expanded to include K-12 education expenses.
- Child care credit has doubled to $2,000.
- The threshold at which medical expenses can be deducted has been decreased to 7.5% allowing for more deductions for medical care.
- There is a new 20% deduction on income from pass-through entities like LLC’s and S-Corporations. There are a ton of restrictions on this one so good planning is essential here.
- The deduction for court ordered alimony is now eliminated in the new Act.
While the new law is applicable to the 2018 tax year and forward, you will see the benefits of this in your paycheck in a few weeks as the withholding mechanisms change to reflect the new rates. The new tax law has been a fun holiday read and I am excited to share some tax saving opportunities with you! Reach out to Jessica at jessica@mccormicktaxgroup.com to schedule a tax strategy session in the first few quarters of 2018 to implement a customized tax plan that incorporates the new law.