As you may already know, it’s now official. The first significant reform of the U.S. tax code since 1986 when Ronald Reagan was president has been ushered through by congress. Changes have been made to both individual and corporate tax rates. Individual provisions in the new legislation technically expire by the end of 2025, though some people expect that a future Congress won’t actually let them lapse. Most of the corporate provisions are permanent. Here are a few quick updates from the 2018 Tax Reform for you to be aware of…
There are still seven tax brackets for individuals, but the rates have changed. The standard deduction has essentially been doubled, the personal exemption is gone, and the state and local tax deduction now has a cap. For single filers, the standard deduction has increased from $6,350 to $12,000. For Married couples, it’s increased from $12,700 to $24,000. Previously, you could claim a $4,050 personal exemption for yourself, your spouse and each of your dependents, which lowered your taxable income. That is no longer the case. The state and local tax deduction, or SALT, remains in place for those who itemize their taxes, but now there’s a $10,000 cap.
So, what can you still deduct? Up to $2,250 per year can be deducted from student loan interest. For medical expenses, filers can deduct medical expenses that add up to more than 7.5% of adjusted gross income. For educators, they can continue to deduct up to $250 to offset what they spend on classroom materials.
And, what deductions are now gone? The deduction for moving expenses, Tax deduction from alimony payments, The tax preparation deduction, The disaster deduction, The reimbursement for bicycle commuters.
Over the next decade, tax reform will increase deficits by $1.46 trillion. That’s the net number that’s been crunched by the nonpartisan Joint Committee on Taxation. The future law’s contribution to the debt will likely be even higher if individual tax cuts are re-upped in eight years.
Another thing is that the corporate tax rate is coming down, and pass-through entities will also get a break. The corporate tax rate has been cut from 35% to 21% starting next year, and the tax burden by owners, partners and shareholders of S-corporations, LLCs and partnerships — who pay their share of the business’ taxes through their individual tax returns — has been lowered via a 20% deduction. And, the way multinational corporations are taxed is about to change. The U.S. is switching to a territorial system of taxation, which means companies won’t owe federal taxes on income they make offshore.
We’ll have more key updates for you in the coming weeks on the 2018 Tax Reform, but this can help serve as a good foundation of new information to work with regarding your current (and future) tax situation.
In the end, one of the biggest expenses retirees face are taxes. No matter what lies ahead for you in your life in retirement, make sure you have discussed specific tax strategies with your trusted financial professional. There may be serious implications on your financial health if not understood or properly planned for. Click HERE to request your complimentary, no obligation review and we’ll work with you to help you better understand the new tax laws, and how they might impact your individualized situation.