All the talk around the new tax plan has finally solidified into action: the new tax reform bill, The Tax Cuts and Jobs Act, has passed in both the House and the Senate. The law passed on December 22nd and was immediately signed into law by President Trump. This bill marks the first major tax overhaul in more than 30 years— this is a huge moment in the tax world. Since there were so many different versions of the bill before it passed, we wanted to take a look at what made it into the final version. Here’s our overview of the new Tax Cuts and Jobs Act.
The Standard Deduction Increased
The new proposed standard deductions made it into the final tax bill, with each bracket’s standard deduction becoming almost double what it was previously. Single filers will have a $12,000 standard deduction (up from $6,350) and joint filers will have a $24,000 standard deduction (up from $12,700).
Changed Tax Brackets
While there are still seven individual tax brackets, both the income requirements and the tax rates have changed. So, even if you make the same amount you did last year, you might find yourself in a different tax bracket when filing for 2018.
Individual Mandate for Health Care Repealed
The individual mandate that all persons must have health insurance for the full calendar year (or face a penalty fee) has been repealed. The repeal will take effect in 2019.
Changed Child Tax Credit
The new child tax credit is $2,000 for each child under the age of 17 and is fully refundable up to $1,400.
A New Cap for Local Property Tax and Income Deduction
State and local property tax and local income deduction are now capped at $10,000.
Corporate Tax Rates Cut
This one is a big win for corporations: the corporate tax rate has been massively cut. Starting in 2018, the tax rate for corporations will be changed from 35% to 21%.
Many Laws Change By Year
A major aspect of the new tax bill is that the new laws will vary for the first 10 years. This affects how many of the new laws will be applied per year. New laws will be coming into play at different times and may either stay permanently or be temporary.
The Tax Cuts and Jobs Act and Your Taxes
Taxes can be confusing for many people and these new laws might make things seem even more confusing, especially as they change from year to year. If your normal tax return is fairly simple with few deductions, The Tax Cuts and Jobs Act might actually make doing your taxes easier, thanks to the new larger standard deduction. But if you have more complicated taxes or usually make many itemized deductions, doing your taxes could end up being more confusing than they were before.
If you have a complex tax return, you should always consider using a tax professional to file. Our team of tax experts at Vanguard Tax Relief is fully up to date with the new tax laws, including each variation for every law per year. Having a professional file your tax returns can help make sure you file under the new system correctly— and take advantage of any new tax deductions that might apply to you.