Now that the 2017 Tax Day is behind us, it’s time to check back in on what we can expect for taxes moving forward.
Tax Day was April 17th, and many American’s were either in the throes of gathering all the final details and tax documents for their annual ritual of filing 2017 returns; or filing a tax extension to get them through a few more months to get everything in order.
Because we take a holistic approach to serving the needs and goals of our clients, our team of professionals continue to keep up to speed on understanding all the details and implications of the tax laws, in particular with the newly passed tax laws that have gone into effect for 2018.
As you know, major tax reform was approved by Congress in the Tax Cuts and Jobs Act (TCJA) on December 22, 2017. Most of the provisions that pertain to individuals are set to expire in 2025. This includes changes to tax brackets, standard deductions and personal exemptions.
Tax rates for businesses and individuals will be lower in 2018, so we thought it would be a good time to revisit some of the key items as a reminder of what you should be prepared for when you file in 2019 (for the 2018 tax year).Tax Brackets Changes
The number of tax brackets for individuals did not change, however, the rates did and are generally lower than before.
- Old Rates: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%
- New Rates: 10%, 12%, 22%, 24%, 32%, 35% and 37%
Higher Standard Deduction Rate
This is one of the most significant changes we will see for 2018. This means that for married filers, it almost doubles to $24,000 and increases to $12,000 for single filers. This may mean that fewer taxpayers will itemize their deductions – which ultimately may simplify the time it takes to file taxes, however, it also may negate the tax advantages of dedications on items such as charity, mortgage interest, etc.
In one of our previous posts at the end of 2017, we recommended for many taxpayers to consider “grouping” itemized deductions every other year and taking the increased standard deduction ($12,000 Individual, $24,000 Joint) every other year. If you did prepay some of the deductions noted above, you may benefit from the standard deduction in 2018. You would then double up on paying deductible expenses in 2019, etc. Please note that the increase in the standard deduction is offset somewhat by the elimination of the personal exemptions.
Added Benefits for Business Owners
If you are a business owner, you may see some additional benefits as well for 2018. Sole proprietorships, “S” Corporations and partnerships and can now characterize income as ‘qualified business income’, receiving a deduction of up to 20% of that amount. Keep in mind, however, that there are limitations for certain specified personal services and/or if your taxable income is over $157,500 (for singles) or $315,000 (if you are married filing jointly).
State and Local Tax Modifications
Although the deduction for state and local taxes remains intact for 2018, the most significant points is that it is now capped at $10,000 annually (for both single and married filers). This includes property, state and sales taxes – which can impact those living in high tax areas (such as New York and California). Effectively, it could mean a tax increase as a property tax bill of $10,000 or more on its own is not uncommon for many homeowners in those areas. Now that state income tax is capped at $10,000 (and used to be an unlimited deduction), this could be a tax increase for those that have large state taxes.
Mortgage Deduction Changes
The new tax law now limits the mortgage interest deduction (for new mortgages) to interest on the first $750,000 in mortgage debt, down from the current $1 million. In addition, home equity interest is no longer deductible. This tax change could significantly impact those that live in expensive areas with high mortgages.
In previous years, alimony was deductible for the payer and taxable income for the recipient. However, with the new tax law, it eliminates the deduction for alimony by the person paying it for divorces that occur after 2018.
We will offer a tax seminar this summer that will cover the tax changes in more detail. If you do not already receive our emails for upcoming events, click here to have more information emailed to you when it becomes available.
Good tax planning is part of your overall financial strategy. We know that there are many nuances that fit into each person’s lifestyles, and there is never a one-size-fits-all scenario when filing taxes. Although we do not provide tax preparation services, we offer strategies and techniques that help you maximize the present value of your after-tax family net worth. Contact us today for a free consultation.
This information has been obtained from sources deemed to be reliable but its accuracy and completeness cannot be guaranteed. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax matters. You should discuss tax matters with the appropriate professional. Links are being provided for informational purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.