The Trump tax plan was signed into law on December 22, 2017. Depending on your circumstances, you might experience significant changes to your tax rates and deductions. However, at more than 500 pages of dense, technical language, most Americans cannot read and interpret the Trump tax plan. Thankfully, the tax lawyers at Sodowsky Law Firm are here to help. Learn more about the Tax Cuts and Jobs Act below.
2018 Tax Brackets
Under the Trump tax plan, there are seven tax brackets. Overall, the Trump tax plan modestly cuts tax rates for most Americans. And, for the 70% of Americans who claim the standard deduction, they will experience a slight increase in their weekly paychecks. For single filers, the new tax brackets include:
- 10% tax rate for $0 to $9,525 of taxable income,
- 12% for $9,526 to $38,700,
- 22% for $38,701 to $82,500,
- 24% for $82,501 to $157,500,
- 32% for $157,501 to $200,000,
- 35% for $200,001 to $500,000, and
- 37% for over $500,001.
While the plan eliminates the personal exemption, the standard deduction increases to $12,000 (from $6,350 in 2017).
If you are married and file jointly, the 2018 tax brackets include:
- 10% rate for $0 to $19,050,
- 12% for $19,051 to $77,400,
- 22% for $77,401 to $165,000,
- 24% for $165,001 to $315,000,
- 32% for $315,001 to $400,000,
- 35% for $400,001 to $600,000, and
- 37% for over $600,000.
Again, the Trump tax plan eliminates the personal exemption but increases the standard deduction to $24,000 (from $12,700 in 2017).
It’s important to know that the U.S. federal tax system is progressive. If you are a single filer that earns over $500,000, you do not pay a flat 37% rate. Instead, you must first calculate your taxable income (subtracting your deductions from your annual income). Then, you pay 10% on your first $9,525, $12% on your $38,700, and so on.
The Trump Tax Plan Changes Many Tax Deductions
While the standard deduction has increased, the Trump tax plan changes many itemized deductions, including:
- Eliminating certain deductions, including those for:
- Home equity loan interest,
- Most moving expenses, and
- Unreimbursed business expenses.
- Caps mortgage interest deductions to the first $750,00 of the loan,
- Limits the state and local tax deduction to a maximum of $10,000,
Some popular itemized deductions, including those for charitable contributions, student loan interest, and retirement savings, continue. And, the plan eliminates tax penalties associated with the Affordable Care Act. If you anticipate claiming the standard deduction in 2018, you might want to prepay some of your state and local taxes in the last few days of 2017.
The Tax Plan’s Personal Tax Changes Are Temporary
While the Trump tax plan makes permanent changes to the corporate tax system, the personal income tax changes will all expire by 2025. In other words, unless Congress enacts additional laws down the road, these changes to personal exemptions, deductions, and tax rates will revert to the 2017 system in eight years.
Speak With an Experienced Tax Lawyer About the Trump Tax Plan
Under the Trump tax plan, an increasing number of Americans will claim the standard deduction in 2018. However, this doesn’t mean that your taxes are becoming simpler. If you have questions about how the plan will impact your 2018 taxes, contact Sodowsky Law Firm today. Our tax lawyers can help you navigate the tax system in 2018 and beyond. We also assist clients with unpaid tax bills, levies, liens, and audits.