If you’re an American taxpayer who gets a paycheck, I imagine you’re pretty anxious to see how the new tax code is going to put more money into your pockets each pay period.
The IRS says they should have everything ready to reflect the changes by February. So, you could be seeing extra cash if you are in the top five tax brackets with your February paycheck.
Moving Forward With New Tax Law
It will be awhile before we all understand the ins and outs and the subtleties of the new tax code. While it is being studied and while the IRS is implementing the changes I’ll do my best to help you understand how you may be affected when you file taxes for 2018. The time to take advantage of any benefits that might have been gained for the 2017 filing period has passed.
For example, in 2018 the charitable deduction has doubled for a married couple filing jointly from $12,000 to $24,000. Had you acted quickly you could have established a donor directed fund or you could have increased your charitable giving by year end and taken a larger deduction on your 2017 taxes.
State And Local Taxes And Property Taxes Affected
Prospective new homebuyers need to take into consideration the implication of the new tax law. If you buy a home this year, when you go to file your 2018 taxes next year, state and local income taxes plus property taxes, added together, will no longer be deductible beyond the annual sum of $10,000. That may make buying a house with high property taxes — or buying at all — less attractive. That means if you’re looking at homes that require mortgages over $750,000, you won’t be able to take a deduction on the interest for amounts above that level starting next year.
Small Businesses And The Gig Economy
Small business owners may be pleased with the new tax law. A pass-through provision will allow you to start deducting 20 percent of your qualified business income from a partnership, S corporation and sole proprietorship, starting next year. However, be aware that there are limits, including a phase-out for the deduction that begins at $157,500 of individual income and $315,000 of income for couples filing jointly. This provision will also apply to those in the gig economy, allowing independent contractors, like Uber drivers, to use the same deduction.
Looking At The New Tax Brackets
As you can see from the chart below, the lowest tax bracket sees no changes. Those in the other tax brackets will see taxes reduced anywhere from 1% – 5%. But, there are other areas that could make tax time more painful as you can deduce from what I’ve written above.
Have a question? Contact Barry Fowler. Your comments are always welcome!