Tax Code Changes
With 2017 taxes hopefully out of the way, the new Tax Cuts and Jobs Act is set to take place for next year’s taxes. I will address this more fully as we approach next year’s deadline, but wanted to give a very quick overview on the major changes the new tax law brings so you can get a head start on understanding any potential impacts.
The big change that comes with the TCJA is the tax brackets have been reduced, if you were in the 15%, you’re now in the 12%, 25% is now 22%, and 39.6% is now 37%. This means that most people will likely have a smaller overall tax bill come next year.
Alternative Minimum Tax
For those who have had to pay under the Alternative Minimum Tax (AMT) system previously, you may be able to avoid paying under that system in the future. The AMT is not a separate or additional tax, it’s a completely different system that requires you to calculate your taxes based on both the traditional tax system and the AMT and pay the higher of the two. The reasons you may be able to escape the AMT are:
State income tax deduction has been greatly limited
The exemption amount under the AMT was increased from $55,400 to $70,300 ($86,200 to $109,400 if married).
The phaseout of the exemption was increased from $123,100 to $500,000 ($164,100 to $1 million if married)
Higher Standard Deduction
The standard deduction has greatly increased from $6,350 to $12,000 ($12,700 to $24,000 if married). This means that many more people will take the standard deduction who used to take itemized deductions.
529 Accounts can now be used to pay for K-12 education tax free.
Alimony Tax Treatment Reversed
Those who pay alimony will no longer be able to deduct it from their taxes and those who receive it will have it counted as taxable income.
There are many more changes to the tax code, and as it comes around to tax time next year I’ll go into a bit more depth. This is just to get you started and aware of what options may be available to you going forward. Are there other areas of concern or do you want more information? Comment or email me!