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A Guide to a Tax Changes

The Tax Cuts and Jobs Act is now law.

The House and Senate authorized a check on Dec. 19. It upheld 227-203 in a House with no Democratic votes and 12 Republican “no” votes. The Senate afterwards upheld a bill 51-48 along despotic celebration lines, with one Republican senator, John McCain, not voting.

Because of teenager changes in a check done by a Senate, a House was compulsory to pass a check again before promulgation it to a president. The House gave final capitulation on Dec. 20 by a 224 to 201 vote. Again, a check perceived no Democratic support and was against by 12 Republicans. President Donald Trump signed it on Dec. 22.

Here we review some of a vital supplies of a new law with a prior taxation code.

Individual Income Tax Rates

The check maintains 7 particular income taxation brackets, though changes a taxation rates and thresholds. See a charts below.

Previous law: These are a taxation brackets that particular taxpayers will use when filing taxes in 2018 for a 2017 taxation year, according to a IRS (see pages 7-9).


New law: These will be a brackets that particular taxpayers will use in 2019 for a 2018 taxation year, as described in Table 4 on page 200 of a conference report. This new rate structure is temporary. It takes outcome with a 2018 taxation year, though will not apply after 2025 — unless Congress takes serve action.



Individual Alternative Minimum Tax

The AMT is a together taxation complement with a apart set of manners that some taxpayers contingency follow when calculating their taxation liability. As a name implies, a AMT is an choice to a unchanging taxation complement and requires taxpayers earning above a certain volume to calculate their taxes twice and compensate a tip amount.

Because it follows a apart set of rules, a AMT disallows some taxation preferences – such as state and internal taxation deductions and contingent exemptions – though provides for a incomparable AMT grant amount.

Previous law: For a 2017 taxation year, a AMT grant volume for singular filers is $54,300 and starts to proviso out during $120,700, and for corner filers, it is $84,500 and starts to proviso out during $160,900, according to a IRS.

New law: The AMT grant amounts will boost to $70,300 for singular filers and $109,400 for corner filers and will proviso out for those taxpayers during $500,000 and $1 million, respectively, according to a inactive Tax Policy Center’s analysis of a bill. These changes will finish after 2025.

Standard Deduction

The customary reduction is a volume that we can concede from your income before calculating your taxation guilt if we do not itemize your deductions.

Previous law: The customary reduction for married filing jointly is $12,700 for taxation year 2017; $6,350 for singular taxpayers; and $9,350 for heads of households, according to a IRS.

New law: The customary reduction for married filing jointly would boost to $24,000 for corner filers; $12,000 for singular taxpayers; and $18,000 for heads of households, according to a TPC analysis. The increasing reduction ends after 2025.

Personal Exemption

A personal grant is a volume that we can concede from your income for any taxpayer and many dependents claimed on your return.

Previous law: $4,050 per person, that means a married integrate with dual dependents would accept a personal grant of $16,200.

New law: The personal grant is eliminated. The grant earnings after 2025.

Child Tax Credit

Previous law: Married couples filing jointly who acquire reduction than $110,000 can accept a taxation credit of adult to $1,000 for any child underneath 17 years aged that they explain as dependents on their taxation earnings ($55,000 is a threshold for married couples filing separately; $75,000 for single, conduct of household, and subordinate widow or widower filers). (See a TurboTax FAQ on a taxation credit for some-more details.)

New law: The credit would boost to adult to $2,000 per child, and a initial $1,400 would be refundable according to a TPC analysis, meaning a credit could revoke your tax guilt next 0 and we would still be means to accept a tax refund. The cut off for a taxation credit would boost from $110,000 to $400,000 for married couples filing jointly. The stretched credit ends after 2025.

State and Local Tax Deductions

Previous law: Taxpayers who itemize their taxes can concede state and internal skill and genuine estate taxes, and possibly state and internal income or sales taxes. For some-more information, see a object “The Facts on a SALT Deduction.”

New law: The SALT reduction will be capped during $10,000. The reduction extent ends after 2025.

Mortgage Deductions

Previous law: Taxpayers who itemize their taxes can deduct seductiveness payments on debt debt of adult to $1.1 million. That includes adult to $100,000 of home equity debt.

New law: For stream debt holders, there is no change. But a deductible extent drops to $750,000 for new debt incurred after Dec. 31, 2017. Also, homeowners might not explain a reduction for existent and new seductiveness on home equity debt, beginning Jan. 1, 2018. The debt reduction changes end after 2025.

Medical Expense Deduction

Previous law: Taxpayers who itemize their taxes can concede medical losses that surpass 10 percent of their practiced sum income, or AGI, according to a IRS.

New law: Taxpayers can concede medical losses that surpass 7.5 percent of AGI in 2017 and 2018, though a new reduction turn ends Jan. 1, 2019.

Limits on Itemized Deductions

Previous law: Itemized deductions might be limited, and sum itemized deductions might be phased out (reduced), if your practiced sum income for 2017 exceeds $313,800 for married couples filing jointly or subordinate widows ($261,500 for singular filers, $287,650 for heads of domicile and $156,900 for married couples filing separately), according to a IRS.

New law: The itemized reduction boundary are repealed by a 2025 taxation year.

Inflation Rate Measure

Previous law: The IRS uses the Consumer Price Index for civic consumers to adjust taxation joint thresholds and other taxation supplies for inflation. That includes such supplies as the customary deduction, a personal exemption, warranted income taxation credit and a choice smallest tax, as a Tax Policy Center explains.

New law: The IRS would switch to an acceleration index famous as a cumulative CPI. As we have written, cumulative CPI is deliberate a some-more accurate measure, but rises rather some-more solemnly than a normal CPI. That would mean bracket thresholds and taxation credits, for example, would arise some-more slowly. That could have a outcome over time of pulling some-more people into aloft taxation brackets and shortening a purchasing energy of taxation credits.

Capital Gains Tax Rate

Capital gains are a increase satisfied from a sale of resources such as bonds or genuine estate.

Previous law: The increase on a sale of resources hold for some-more than one year are authorised for a taxation break. Turbo Tax explains a 2017 taxation rates this approach for a increase gained from a sale of such assets: “For 2017, a long-term collateral gains taxation rates are 0, 15, and 20 percent for many taxpayers. If your typical taxation rate is already reduction than 15 percent, we could validate for the 0 percent long-term collateral gains rate. For high-income taxpayers, a collateral gains rate could save as most as 19.6 percent off a typical income rate.”

New law: No changes.

Estate Tax

Previous law: A tip rate of 40 percent relates in 2017 to estates valued during some-more than $5.49 million (nearly $11 million for couples), according to a IRS.

New law: The tip rate of 40 percent would request to estates valued during some-more than $11.2 million ($22.4 million for couples). The increasing levels end after 2025.

Corporate Taxes

Previous law: The tip corporate rate was 35 percent.

As with some high-income particular taxpayers, companies are also compulsory to calculate their taxation guilt regulating a corporate choice smallest tax — a parallel complement that reduces or eliminates some deductions and taxation credits. After calculating taxation guilt regulating both a unchanging corporate income taxation complement and a corporate AMT, companies compensate a aloft of a dual amounts.

New law: The tip rate would be 21 percent, and a corporate AMT would be repealed, as described in Bloomberg’s guide to a final taxation bill.

Pass-Through Business Taxes

Previous law: Businesses orderly as solitary proprietorships, LLCs and partnerships don’t compensate corporate taxation rates. Instead, a owners compensate particular income taxes on their share of business income – they’re called pass-through business taxes. Those taxation rates are a same as a particular income taxation rates.

New law: Business owners can take a 20 percent reduction on their pass-through business income, with limits for those earning above $157,500 (single) and $315,000 (married, filing jointly).

Revenue Impact

The changes in a taxation formula are approaching to revoke sovereign taxation revenues by an estimated $1.46 trillion over 10 years, according to a inactive Joint Committee on Taxation.

Editor’s Note: Our full coverage of a Republican taxation legislation can be found here.

Updated, Dec. 22: This story has been updated to simulate that a boss sealed a check into law on Dec. 22.

Article source: https://www.factcheck.org/2017/12/guide-tax-changes/