What Does The New Tax Law Mean For You?
For most taxpayers, the biggest change after the new tax law will be whether they continue to itemize deductions, or opt for simply the standard deduction. With the changes, the standard deduction has increased from $6,350 for single filers to $12,000 and for those filing jointly, from $12,700 to $24,000. By some estimates, this will reduce the number of taxpayers who itemize by two-thirds.
Why itemizing loses appeal
There are reasons why more taxpayers may opt for the standardized deduction rather than itemizing. This is in large part because of the changes to what deductions may be claimed. One of the most significant changes is in property tax deductions, currently taxpayers may claim their property taxes on their federal tax returns but beginning with the 2018 tax year, these amounts will not be deductible. There is still an allowance of $10,000 for property taxes so for some taxpayers this will not be a problem.
Repeal of individual mandate
Another change impacts those taxpayers who have opted to pay the IRS a fine versus carrying medical insurance. Beginning with the 2018 tax year, the Affordable Care Health Act (Obamacare) individual mandate has been repealed which means taxpayers will no longer be responsible for paying a fine if they have no coverage, or if their coverage does not meet minimum requirements.
Changes to alternative minimum tax
Another significant change is the alternative minimum tax (AMT) which impacted millions of high-earners. Currently, a single filer could exempt $54,300 and married filers could exempt $84,500. Under the new rules, the exemptions are $70,300 for single filers and $109,400 for joint filers.
Tax bracket changes
While there are still the same number of tax brackets that will be applied to your earnings, there are some changes to the income levels. As a result of these changes, some taxpayers will see a slight increase in their taxable income, hopefully in most cases, this will be offset by the higher standard deduction. The most visible change is to those who earn between $200,000 and $416,400, their tax rate will be increasing from 32 percent to 35 percent for singles.
Not all changes impact every taxpayer
Whether you are a small business owner, or an individual taxpayer, not every change that was made through the tax reform act will impact you. In some cases, it may be possible to minimize the impact of your tax bill by planning ahead. To do this, you need to work with someone with financial, and tax experience.
If you are a Virginia business owner, or an individual who is concerned about the potential impact of the tax bill, contact Rue & Associates today to discuss tax preparation and the changes you can make to minimize the impact of the tax bill on your tax burden. We have a skilled staff of experienced businesspeople and accountants, tax professionals, Enrolled Agents and CPA’s who can help you work out a plan to ensure you are not surprised when it comes time to file your 2018 taxes.