The Tax Cuts and Jobs Act was signed into law on December 22, 2017. It incorporates several revisions to tax laws as Americans know them, making it a hot topic in the news. It’s understandable to be confused by all the new changes. That’s why we’re breaking down the ones most likely to impact you.
Let’s get started!
Does the new tax law affect my tax filings in 2018?
The Tax Cuts and Jobs Act became public law on December 22, 2017. Changes go into effect this year (2018), meaning they’ll impact you in early 2019, when you’re filing your 2018 taxes.
Is my tax rate going up or down?
If you’re filing taxes as one of the following:
- Single with Income Level of $38,700 – $82,500, or
- Married-Joint with Income Level of $77,400 – $165,000
Your income tax rate will now be 22%, down from 25%. You will see changes in your paychecks as early as February 2018.
What about deductions and exemptions?
Standard deductions double under the new tax plan.
- Single: $12,000 (up from $6,350)
- Married – Joint: $24,000 (up from $12,700)
Personal exemptions no longer exist under the new tax plan. Under previous law, you could subtract $4,150 from your income for each person you claimed when filing.
Because these personal exemptions have been eliminated, some families with several children could now pay higher taxes (even with the increased standard deductions).
Charitable contributions, retirement savings and student loan interest are still deductible.
I’m a homeowner. Am I affected?
If you already own a home, you won’t be impacted by the changes to mortgage interest and property tax deductions.
But if you’re looking to purchase a home, a few things are changing:
- Mortgage Interest Deduction: This deduction is now limited to the first $750,000 of your home loan.
- Home Equity Lines of Credit: No longer deductible.
What about property taxes?
Under the new tax legislation, your state and local tax (SALT) deductions are bundled into one, and capped at $10,000.
What changes could I see as a small business owner?
The standard deduction for pass-through businesses (sole proprietorships, LLCs and S corporations) increases to 20%. Your deductions phase out if your income reaches:
- Single: $157,000
- Married-Joint: $315,000
And rather than amortizing your depreciable assets over the years, you can now deduct depreciable assets in one year (must be purchased between September 27, 2017 and January 1, 2023).
Do any changes impact my retirement savings?
For the most part, your retirement savings went untouched by the latest tax reform. However, there are a few minor changes to note.
You can now make contributions to your Thrift Savings Plan up to $18,500 annually. That means you can contribute an extra $500 more to your TSP than you could in 2017. The $18,500 limit is applicable to the “combined total” of your contributions to Roth and Traditional TSP programs. The same annual contribution limit is being applied to employer-sponsored retirement plans such as 401k.