For Mark Roberts’ Use: Throughout the busy holiday season, Congress and the new tax plan remained hot topics in the news. Yes, they did finally reach an agreement, and our income tax structure will undergo a significant renovation. It can often be difficult to ascertain exactly how these events will play out for individuals, but here is what we know so far.
Brackets and percentage rates. Despite speculations to the contrary, we ended up keeping the current number of income brackets (seven, to be exact). However, the taxation rates have fallen just slightly. The bottom bracket remains at a tax rate of 10 percent, but has grown to include more taxpayers. The top bracket (income over $500,000 annually, or $600,000 for married couples filing jointly) has seen its taxation rate drop slightly, from 39.6 percent to 37 percent.
These brackets and rates will remain in effect until 2025.
New standard deductions. Approximately 70 percent of taxpayers elect to use their standard deductions, with 30 percent itemizing their returns. Theoretically, we might now see more choosing to take the standard deductions, as they have been nearly doubled from previous amounts.
- The standard deduction for single taxpayers was increased from $6,350 to $12,000
- The standard deduction for married taxpayers, filing jointly, was boosted from $12,700 to #24,000
- The standard deduction for heads of household grew from $9,350 to $18,000
Many deductions have changed. The new tax law eliminates or reduces some common tax deductions, while increasing others. The most frequently used ones include:
- The deduction for local or state taxes, such as property taxes, has been limited to $10,000
- The medical expense deduction, previously limited to amounts in excess of 10 percent of gross income, has been expanded to include expenses beyond 7.5 percent of gross income
- Certain deductions, like those related to tax preparation, investment fees, and job expenses like transportation and moving costs, have been eliminated
Now, more than ever, it becomes important to work closely with your tax professional throughout the year. If you’re planning to utilize any specific deductions next year, check on their status before making big decisions.
The deduction for contributions to qualified retirement plans still stands. So, stay in contact with us, and let’s work to ensure that you reap the maximum tax benefit in 2