Each time a new president is elected, they usher in their bold new tax plan that has Americans supposedly feeling better about their bottom line. Donald Trump is no exception. In 2017, President Trump not only announced major tax cuts, but also vastly overhauled the U.S. tax code. This includes the creation of new tax brackets.
While the law went into effect on January 1st of 2018, Americans won’t file taxes under the new plan until April of 2019. This is despite the fact that you may have noticed changes on your paystubs. This handy chart outlines the details of President Trump’s new tax brackets for 2017.
| Tax Rate | 2018 Single Filer Brackets | 2018 Joint Filer Brackets |
| 10% | $0 – 9,525 | $0 – $19,050 |
| 12% | $9,526 – $38,700 | $19,051 – $77,400 |
| 22% | $38,701 – $82,500 | $77,401 – $165,000 |
| 24% | $82,501 – $157,500 | $165,001 – $315,000 |
| 32% | $157,501 – $200,000 | $315,001 – $400,000 |
| 35% | $200,001 – $500,000 | $400,001 – $600,000 |
| 37% | Over $500,000 | Over $600,000 |
The revised Trump tax plan increases the top boundaries for qualifications of lower brackets and decreases the tax rate for all but the lowest bracket.
The biggest changes were to tax brackets between $38,701 and $400,000 which saw significant decreases. Married couples who filed tax returns last year between $233,351 – $416,700 paid a tax rate of 33%. Under Trump’s tax plan, those below $315,000 will look forward to a tax rate nine percentage points lower this year.
The highest income earners in the country will also see a major tax break this year. Their burden dropped 2% lower than 2017. More individuals will qualify for the lowest tax rate at 10% gross income this year. The number as been raised about $400.
How Marginal Tax Rates Work
There are a lot of folks out there who don’t quite know how tax rates are applied. For instance, if you earned $40,000 last year and are a single filer, you probably think that entire income will be taxed at a rate of 22%. Not so fast! Only the money you earned in excess of $38,701 will be taxed at a rate of 22%.
For instance, let’s assume you made $1 million last year and you’re filing as a single filer. The first $9,525 that you earned will be taxed at a rate of 10%. Money earned in excess of $9,525 but less than $38,701 will be taxed at 12%. Money earned in excess of $38,701 but less than $82,500 will be taxed at a rate of 22% and so on.
Standard Deduction Increases
On top of the revised brackets and reduced rates for most filers, the standard deductions have increased as well.
This year, standard deductions are:
| Single Taxpayers / Married Filing Separately | $12,000 |
| Heads of Households | $18,000 |
| Married / Joint Filers | $24,000 |
| Qualifying widows or widowers | $24,000 |
Standard deductions reduce your amount of taxable income.
Itemizing vs. Standard Deduction
Many individuals choose the standard deduction over itemizing each deductible purchase simply because it’s simpler than keeping track of each tax-deductible item. In addition, there will be a number of cases in which the standard deduction exceeds their list of itemized deductions.
Contributions to Retirement Funds
In addition, the new tax plan allows earners to put more money into their 401(k), 403(b), and a majority of 407 plans increasing the amount from $18,500 to $19,000. On top of that, IRA contributions increased from $5,500 to $6,000.
Insurance Mandate
There is no longer a tax penalty for not having health insurance. The Trump admin did away with the individual mandate under the Affordable Care Act.
Estate and Tax Matters
President Trump’s tax plan affects estate planning as well. You can now double the amount of individuals to which you bequeath property after you pass. This allows you to shield more of your estate from federal estate taxes. The estate tax exemption is now $11.4 million per individual.
Talk to a Northern Virginia Tax Attorney
It’s never too early to begin thinking about filing for taxes. While tax season causes the majority of Americans stress, there should be less reason to be stressed this year than in the past. You’ll likely notice that you get to keep more of the money that you earned and that you can contribute more of your money to your retirement. Sodowsky Law Firm helps individuals prepare and file their taxes while also getting them out of jams with the IRS. For more information, contact us today.
