iStock_000018683493_Small.jpg

Blog

Tax Reform and You: What’s New in 2018 (Part 1)

The Tax Cuts and Jobs Act of 2017 totals 1,097 pages – not exactly light reading for anyone, even a CPA!

At AMDG Financial, we’ve been studying the ramifications of the new law for taxpayers and want to help you prepare for the changes effective in the 2018 tax year. Be sure to follow our blog for a series of useful information and tips over the coming months, and join us on Wednesday, Feb. 28 at 3 p.m. EST for our webinar: Making Sense of Tax Reform. On the webinar, we’ll take a deeper dive into some of the changes that took effect on Jan. 1 and show you how to maximize your options under the new law.

If you’re worried about how the changes could affect your 2017 taxes, relax! The new tax law impacts taxes for the 2018 tax year and beyond; it does not affect the ones you’ll file this year. That said, employees may have to change their withholding once the IRS issues its guidance for tax reform implementation (expected this month), but there’s no need to take action now. The IRS anticipates employers will make payroll changes in February, so watch for any announcements from your human resources or payroll department.

Better Investment Experience

Some Things to Smile About

The Tax Cuts and Jobs Act incorporates some beneficial modifications for families, including higher child tax credits, reduced tax rates and higher standard deductions. But to pay for the perks, congress took away some of the more popular deductions that many Americans value (we’ll discuss those in Part II). Here’s an overview of some of the changes that families may consider positive:

Tax Brackets

The old law featured a seven-bracket progressive rate income tax with a top marginal rate of 39.6 percent. The new law lowered the progressive tax rate on six of the seven brackets, and shifted the dollar range for all but the first two brackets. The top marginal rate for 2018 and beyond is 37 percent; however, these new tax brackets have a sunset date of 2025.  Here’s a comparison of the old and new brackets:

 2017                                                                            2018

Rate

Single

Head of Household

Joint

Rate

Single

Head of Household

Joint

10%>

$0

$0

$0

10%>

$0

$0

$0

15%>

$9,525

$13,600

$19,050

12%>

$9,525

$13,600

$19,050

25%>

$38,700

$51,800

$77,400

22%>

$38,700

$51,800

$77,400

28%>

$93,700

$133,850

$156,150

24%>

$82,500

$82,500

$165,000

33%>

$195,450

$216,700

$237,950

32%>

$157,500

$157,500

$315,000

35%>

$424,950

$424,950

$424,950

35%>

$200,000

$200,000

$400,000

39.6%>

$426,700

$453,350

$480,050

37%>

$500,000

$500,000

$600,000

Standard Deductions

The new law nearly doubles the standard deduction for all filers. Here’s the breakdown:

  • Single Filers: Increases from $6,500 to $12,000
  • Head of Household: Increases from $9,550 to $18,000
  • Joint Filers: Increases from $13,000 to $24,000

The new law eliminates the personal exemptions included in the 2017 tax law. All of these new provisions will sunset at the end of 2025.

Child and Family Tax Credits

Prior to 2018, parents could receive a partially refundable $1,000 “child tax credit” for their first two children, with a smaller “additional child” credit for any other children. The new tax law treats this a bit differently. Now, the child tax credit increases to $2,000, of which $1,400 would be refundable (with the refundable portion indexed to inflation). Children not eligible for the child tax credit would instead be eligible to a new $500 per-person “family tax credit.” Single filers making $200,000 or more, or joint filers making $400,000 or more would see this benefit begin to phase out at the $200,000 and $400,000 threshold, respectively. These credits would also sunset at the end of 2025.

529 Deduction

Until the end of 2017, the IRS allowed taxpayers to deduct their deposits into a 529 account, which could be used for tuition and expenses for college. The new tax law expands the uses for 529 funds to include home-schooling costs, as well as tuition for K-12 children in private schools.

Next Up: Deductions That Are Going Away

In our blog next week, we’ll talk about a number of deductions that will no longer be in effect under the Tax Cuts and Jobs Act, including moving expenses, interest on home-equity loans, “commuter” benefits, job expenses, investment fees and tax prep, casualty and theft losses, and more. In the meantime, if we can be of assistance in your tax planning, please don’t hesitate to send us a message, or call us at 734.737.0866. At AMDG Financial, we integrate tax, financial and investment strategies to help our clients reach their goals, and we’d love to explore working with you.

Click here to view previous news releases from AMDG Financial.

Subscribe to our blog!