Highlights on how the new tax codes will affect you
The new tax bill was signed into law and will go into effect on January 1, 2018. But regular Americans won’t feel the effects of tax reform until spring 2019, when they file taxes for 2018.Dec 15, 2017. The new tax codes raise the standard deduction from $6,350 to $12,000 for single people, and $12,700 to $24,000 for married couples. Second, it limits other deductions—most famously for state and local taxes. If you don’t have a lot of deductions and usually take the standard deduction, it’s good news for you.
State and local taxes
The new tax bill would limit how much state and local taxes individuals can deduct, to no more than $10,000 of a combination of property taxes and either income or sales taxes.
The new tax code will make the current tax rate go down from a 35 percent rate to 21 percent. The corporate tax cut will is left permanent This will give businesses a big boost indefinitely into the future. Many of the provisions in the bill have expiration dates, most notably the tax cuts for individuals at the end of 2025. Before each of these measures expires, Congress will have to decide whether to extend the policy into the future.
Provisions set to expire
- Individual tax rates and brackets, Personal exemption repealed, Pass-through business income deduction
- State and local tax deduction capped at $10,000, Business investment write-off, Child tax credit doubled
- Estate tax exemption doubled, Alternative minimum tax narrowed
Current tax law allows employees to deduct unreimbursed expenses related to their jobs as long as they’re more than 2 percent of income. The tax bill ends these itemized deductions after the end of this year. Examples of unreimbursed expenses for employees might include tools and supplies, occupational taxes, work uniforms, union dues, and expenses for work-related travel. Self-employed people and business owners would still be able to deduct expenses under the new tax bill.
Student loan interest deduction stays
You’re allowed to claim a deduction of up to $2,500 per year on the interest paid for student loans.
If you own a small business
A pass-through provision on the new tax codes will allow you to start deducting 20 percent of your qualified business income from a partnership, S corporation and sole proprietorship, starting next year. There are limits, including a phaseout for the deduction that begins at $157,500 of individual income and $315,000 of income for couples filing jointly. The provision will also allow independent contractors, like Uber drivers, to use the same deduction. Millions of taxpayers at the highest income levels will now be able to get similar tax relief as corporations by taking advantage of the pass-through provision.
The amount you can receive without being taxed is about to go up. Currently, estates worth less than $5.5 million can be transferred with no tax. Between next year and 2026, that base will roughly double. That means the best time to inherit your fortune, if it’s more than $5.5 million and less than about $11 million, will be from 2018 to 2026.
The new tax codes provide incentives to businesses in those states to start offering parental leave — but only through 2018 and 2019.
401(k) plans stay the same. There will be no changes to the tax-free amounts people are allowed to put into 401(k)s, IRAs and Roth IRAs.n
The individual health insurance mandate goes away in 2019
Americans would no longer be required by law to buy health insurance. There will be not be a penalty if they don’t purchase a health insurance plan.
The child tax credit would be more generous for low-income families and the working class
The current child tax credit is $1,000 per child. The House and Senate bills expanded the child tax credit, with the Senate going up to a maximum of $2,000 per child. The final bill keeps the $2,000-per-child credit (families making up to about $400,000 get to take the credit), but it also makes more of the tax credit refundable, meaning families that work but don’t earn enough to actually owe any federal income taxes will get a large check back from the government.