The rules in the 2017 Tax Cuts and Jobs Act (TCJA) went into effect on January 1, 2018 and will expire on December 31, 2025. That means you will start to see the effects of these mandates on your taxes as we begin tax season. Here is a brief look at a few changes to the tax code that could affect you.
Four Changes Made by the 2017 Tax Cuts and Jobs Act
- Personal Standard Deductions – The standard deduction reduces your taxable income and can be taken if you do not itemize deductions. In 2017, that deduction was $6,350 for single taxpayers and couples filing separately. For couples filing jointly in 2017, that deduction was $12,700. The TCJA changed that. Now, single payers and married payers filing separately have a $12,000 standard deduction. Under the new rules, couples who file jointly will have a $24,000 standard deduction and the heads of household will have a $18,000 standard deduction.
- State and Local Tax Deductions – Before the TCJA, taxpayers could deduct an unlimited amount of state and local property, income, and sales tax. This is no longer the case. The maximum deduction for State and Local Tax (SALT) is now $10,000. To make up for the loss of this deduction, some states are establishing government-linked “charitable” funds that will give an offsetting tax credit; however, proposed Treasury Regulations would eliminate charitable deductions that earn state tax credits in excess of 15% of the charitable contribution.
- Personal Income Tax Rates – The marginal rates that taxpayers must pay the government decreased thanks to the TCJA. In 2017 those rates were 10, 15, 25, 28, 33, 35, and 39.6 percent. In 2018, those rates have decreased to 10, 12, 22, 24, 32, 35, and 37 percent.
- Child Tax Credit – Caring for dependent children under the age of 17 qualifies taxpayers for the Child Tax Credit. Before the TCJA, that credit was only $1,000 per child. Now, that credit is $2,000 for each dependent child. The income cap for the Child Tax Credit was also increased to $200,000 for single filers and $400,000 for married couples filing jointly.
These are only a few of the changes implemented by the TCJA. This wide-sweeping piece of legislation also changed alimony deductions, itemized deductions, estate and gift tax exemptions and many other areas of the tax code. Consulting an experienced tax attorney who can help you navigate these changes may be the best option if you don’t want to risk a mistake. If you have any questions, please send them to [email protected].
This blog is not intended as legal or tax advice and all laws and regulations are subject to change at any time.