When and How The GOP Tax Bill Will Affect You
With President Trump signing the tax bill into law recently, it’s time to look at how the new tax bill will affect you. There are many nuances to this bill, but there are a few items that will have the greatest impact for most Americans.
Tax Bracket Changes:
When: 2018 Tax Year to 2025 Tax Year
The new tax bill will affect almost all the current seven tax brackets. Most Americans will see a reduction of their tax liability. The individual tax rate changes are not permanent and are set to expire in 2025*. You should start to see a difference in your tax withholding starting in February.
The Increased Standard Deduction:
When: 2018 Tax Year
For the 2017 tax year, the standard deduction for single tax payers is $6,350 and the joint filing standard deduction is $12,700. For the 2018 tax year, the standard deductions are increasing to $12,000 and $24,000 respectively. If you do not itemize or you hate itemizing, this new tax change is a win for you. If you currently itemize, it may or may not make sense to do so in the future. You’ll have to speak with your accountant about what works best for you moving forward. Charities would most likely be negatively impacted by this change since charitable deductions are itemized deductions.
Reduction of the SALT Deduction:
When: 2018 Tax Year
SALT is the state and local tax deduction and the GOP bill will now cap the deduction to $10,000 where previously there was no limit. This is going to adversely affect states with higher state/local income and property tax (i.e. Massachusetts). Once again, if you are itemizing this will probably negatively affect you, but it may be offset by the increased standard deduction.
See Also: Financial New Year's Resolutions
Mortgage Interest Deduction:
When: 2018 Tax Year
The mortgage interest deduction is not going away, but the new bill will limit the deduction to mortgage values of $750,000 or less (the current cap is $1.1 million). The bill also eliminates the deduction of the interest on a home equity loan.
Child Tax Credit
When: 2018 Tax Year
The tax bill is going to increase the child tax credit to $2,000 per child, which is up from $1,400 per child. The credit will phase out for incomes of $200,000 plus for single filers and $400,000 for joint filers. The bill will now expand the use of 529 plans. Parents will be able to use 529 plans to pay for K-12 expenses instead of just college expenses.
Please be sure to reach out to your accountant to determine how the new tax bill will impact you personally.