A lot of people have always dreaded tax fillings and everything that has to do with tax, but when the new tax cuts and jobs act otherwise known as TCJA was eventually passed into law, it led to the complete change of all other income tax methods ever passed by the federal government.
TCJA completely changed the way that individuals and business are taxed, though the changes to corporate tax stays permanent, but for individuals, it expires in 2025.
The taxes that you filled last year will not be affected by the new tax reform bill, though the law was passed a year ago. The effect of ‘’Tax cuts and job acts will be felt from April when your new tax forms are filed, and you will realize that a little money was held back from your paycheck because of the new changes.
A lot have been said about how the new tax reforms will reduce taxes paid by businesses, but it will also affect the amount that individuals will pay to IRS up to 2025.
The new reform changes a lot of things such as income tax rates, alternative minimum tax (AMT), deductions and estate tax.
Just the way the former tax system was, the tax cut and job act (TCJA) also has 7 tax brackets, though the different tax rates were adjusted from , , %, (, 3, 5, and 39.6% in 2017 to , , ", $, 2, 5, and 7 for 2018 to 2025.
The level of income for the 7 tax brackets got adjusted also. An example is, the 2018 7 rate will become applicable if the taxable income increases above $500,000 for people that file their tax as single and for people that file jointly, when income is above $600, 000.
Prior to the tax year of 2018, adjustment to inflation for things such as standard deductions, tax brackets, plus other tax requirements for consumers that lived in the city where anchored on consumer price index.
Consumer price index trails the amount of services and goods that the average American family consumes, so using it to slowly increase the amount of tax that people pay over time was ideal.
Tax cut and job acts increased standard deductions when is compared to what is obtainable in 2017. It increased from $12,000 for people that file as individuals to $24,000 for people that file jointly all through to 2025. There will adjustments made to the deductions because of Inflation starting from 2019.
The increase in standard deduction is actually for the purpose of reducing the amount of people that pay tax that itemize their deductions. The effect of this is that, the tax cut and jobs act has seriously restricted the itemized deductions that are most popular.
A typical example of this is that, in the case of tax for state and local, the deduction is restrictedto ten thousand dollars for the whole state and local sales tax, income and property taxes, up to 2025. Also reduced is the deduction on mortgage interest.
Interest can only be deducted by taxpayers on mortgage debt up to the tune of $750,000, and up to a million dollars for debt on mortgage that was incurred prior to 12/15/2017.
There are a number of itemized deductions that will be reduced from 2018 to 2025. Such as sundry itemized deductions, and others like unreimbursed employee business expenses and investment expenses were temporarily stopped.
Also the deductions for losses due to theft and personal casualty losses were not affected by the law, but its application is recognized only when the casualty losses is a federal government confirmed disaster.
Some notable changes were made to ‘’above-the-line’’ deductions. An example is the case of divorces that has been concluded later than 2018. Alimony paid by the spouse will not be deductible, and another good thing is that the spouse that will receive the alimony payments will also not be taxed.
The tax cuts and job acts (TCJA) is a voluminous document that has almost 500 pages, and in it is some provisions that is capable of changing the way pay tax from now on. So it is advisable to seek the professional advice of your tax preparer, or find a tax preparer if you don’t have one already, In order to know how to handle your tax issue from now onwards.
Debi G Hill, CPA