2017 tax law: Here are the changes you can expect

February 1, 2018

Here is a brief overview of the Tax Cuts and Jobs Act passed by Congress.

 

Taxes have been in the news a lot lately. What changes should I expect from the tax bill Congress recently passed?

Here is a brief overview of the Tax Cuts and Jobs Act passed by Congress. President Trump signed the bill into law on Dec. 22, 2017, and the changes will become effective in early 2018.

Tax brackets. The bill preserves seven tax brackets, but changes the rates that apply to: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Previous rates were 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%.

Here's how much income applies to the new rates:

  • 10% (income up to $9,525 for individuals; up to $19,050 for married couples filing jointly)

  • 12% (over $9,525 to $38,700; over $19,050 to $77,400 for couples)

  • 22% (over $38,700 to $82,500; over $77,400 to $165,000 for couples)

  • 24% (over $82,500 to $157,500; over $165,000 to $315,000 for couples)

  • 32% (over $157,500 to $200,000; over $315,000 to $400,000 for couples)

  • 35% (over $200,000 to $500,000; over $400,000 to $600,000 for couples)

  • 37% (over $500,000; over $600,000 for couples).

Note: The majority of individual income tax changes are temporary, expiring Dec. 31, 2025.

Deductions. The new bill nearly doubles the standard deduction. For single filers, the bill increases the deduction to $12,000 from $6,350; for married couples filing jointly, it increases to $24,000 from $12,700. However, it eliminates personal exemptions. Previously, you were allowed to claim a $4,050 personal exemption for yourself, your spouse, and each of your dependents. Claiming these exemptions lowered your taxable income and thus your tax burden in the past.

Also by Jeff Witz, CFP, and David Zemon: How to form a student loan repayment strategy

The bill preserves the state and local tax deduction for anyone who itemizes, but caps the amount that may be deducted at $10,000. Before, the deduction was unlimited for your state and local property taxes plus income or sales taxes.

Child tax credit. The new law doubles the child tax credit. The new credit is $2,000 for children under 17 years of age. The credit is also made available to higher earners by raising the income threshold under which filers may claim the full credit to $200,000 for single parents and $400,000 for married couples. These income thresholds stood at $75,000 and $110,000 respectively in previous years.

Affordable Care Act individual mandate. The Affordable Care Act individual mandate is repealed beginning in 2019.

Mortgage interest deductions. The law lowers the cap on mortgage interest deductions. If you take out a new mortgage on a first or second home, you will only be allowed to deduct the interest on debt up to $750,000, down from $1 million. Homeowners who already have a mortgage would be unaffected by the change.

Next: Alternative minimum tax, estate tax, charitable donations

 

Alternative minimum tax (AMT). The new tax law curbs who is hit by the AMT. The final bill keeps the AMT, but reduces the number of filers subject to it by raising the income exemption levels to $70,300 for single filers, up from $54,300 previously; and $109,400 for married couples, up from $84,500.

Estate tax, charitable contributions, 529 plans. One of the most significant changes is that the new law exempts almost everybody from the estate tax. While the bill does not call for a repeal of the estate tax, it essentially eliminates it by doubling the amount of money exempt from the estate tax to $10.98 million for individuals and $21.96 million for married couples.

The law does not change a taxpayer’s ability to deduct charitable contributions (assuming they itemize deductions). However, the increased standard deduction will reduce the number of taxpayers who itemize deductions and could impact future contributions.

Read: How to choose between Roth, traditional accounts

Another big change under the new law is that 529 accounts can now be used for K-12 education. Previously, these accounts could only be used for higher education. Up to $10,000 per year can be used on qualified K-12 education expenses.

To understand how these tax law changes as well as others not listed above may impact you, contact your CPA.

 

I was always taught to keep my financial matters personal and be relatively secretive about my money. Now that I’m getting married, how open I should be with my fiancé?

Often, couples hide financial secrets from their partners, which can negatively impact a relationship. Your fiancé is about to become a 50/50 partner in your life and that includes your finances. It is best to be open and communicate regularly about your financial situation and your financial goals no matter how short or long term they may be.

At the same time, make sure to be sensitive to their financial circumstances and financial goals. Talk to your significant other about what you want for the future. Take some time to build a shared vision of what your financial future looks like.

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Send your questions about estate planning, retirement, and investing to Jeff Witz, CFP, and David Zemon c/o Urology Times, at UT@advanstar.com Questions of general interest will be chosen for publication. The information in this column is designed to be authoritative. The publisher is not engaged in rendering legal, investment, or tax advice.

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