It’s officially tax season! Whether you are an individual or corporate tax payer, big changes are coming your way via the federal Tax Cuts and Jobs Act (TCJA). These changes represent the broadest changes in the U.S. tax code in over 30 years, and chances are, if you are an American taxpayer, these changes affect you.
Overview of Important Changes in the 2018 Tax Law
The goal of the TCJA is to provide significant tax relief to a greater reach of citizens. Its most noteworthy provisions accomplish this goal by increasing standard deductions and lowering tax rates overall. Whether you are single, married, or married but file your taxes separately, your tax bracket has changed.
Am I In a Lower Tax Bracket?
The new legislation reduces the tax rate for most incomes and increases the sum you need to make before entering the next level tax bracket. The only bracket that does not get a lower rate is the very lowest bracket, although the threshold to be in this bracket — $19,050 for married taxpayers filing jointly — has increased from $18,650 the previous year.
- Individuals earning up to and including $9,525 or married taxpayers filing jointly earning up to and including $19,050 are in the 10% bracket.
- Individuals earning $9,526-$38,700 or married taxpayers filing jointly earning $19,051-$77,400 are in the 12% bracket (down 3% from 2018).
- Individuals earning $38,701-$82,500 or married taxpayers filing jointly earning $77,401-$165,000 are in the 22% bracket (down 3% from 2018).
- Individuals earning $82,501-$157,500 or married taxpayers filing jointly earning $165,001-$315,000 are in the 24% bracket (down 4% from 2018).
- Individuals earning $157,501-$200,000 or married taxpayers filing jointly earning $315,001-$400,000 are in the 32% bracket (down 1% from 2018).
- Individuals earning $200,001-$500,000 or married taxpayers filing jointly earning $400,001-$600,000 are in the 35% bracket (no change from 2018).
- Individuals earning $500,001 or more or married taxpayers filing jointly earning $600,001 or more are now in the 37% bracket (2.6% down from 2018).
Changes in Standard Deductions
The TCJA increases the standard deduction that single and married taxpayers can claim on their tax returns. Before, the tax code allowed for a standard deduction and a personal exemption. For a single taxpayer, this would have been a standard deduction of $6,500 and a personal exemption of $4,150. The TCJA simplifies this process and rewards the taxpayer with a new, fixed standard deduction of up $12,000. This amount doubles for married couples filing jointly. While taxpayers may still choose to itemize their deductions, most taxpayers will benefit from the standard deduction.
Benefits for Independent Business Owners
The TCJA also includes a new 20% deduction on business income from so called pass-through entities. According to Matthew T. Eyet, Esq. JD, LLM, “most small business owners, independent contractors, and real estate investors will be able to take advantage of the new deduction.”
Some of these tax changes are only good through 2025, and some expire even sooner. Get the details you need for your unique situation this tax season by speaking with a tax attorney. If you are wondering how these changes will affect you personally, reach out to the experienced tax lawyers at Sandelands Eyet LLP. Contact us for a consultation or call (908) 470-1200.