It’s the biggest change in tax law since 1986, and some may have already felt the positive effects in their pocket book.
President Donald Trump signed the sweeping tax code overhaul into law in December 2017.
While it almost immediately affected withholdings for taxes for individuals, the changes won’t hit your tax returns until you file your 2018 taxes next year.
Joel Gibbons is a CPA, and manager for the local firm Lewis & Knopf. He said the overall impact will be a reduction in taxes for most taxpayers and businesses.
This will vary per individual and business, and not everyone will see a drop in taxes. “It would be best to consult with a tax professional with any specific questions of how this law will affect you,” he said.
In the meantime, he suggests that individuals, married couples and families with dependents examine the new IRS withholding tables, and discuss with their tax preparer how the new law will affect them.
“Businesses will need to do some additional tax planning this year and consult with their advisor on what is the best course of action for 2018,” said Gibbons.
Tax law highlights
According to the Joint Committee on Taxation, the law will increase the deficit by $1.46 trillion over 10 years.
There are still seven tax brackets, but the percentage rates are changed to 10, 12, 22, 24, 32, 35 and 37 percent
The standard deductions have doubled, but the personal exemption is gone.
The Child Tax Credit has been expanded, and a new tax credit has been added for non-child dependents.
The mortgage interest deduction has been lowered.
Source: CNN Money
How will it affect families,
businesses, and individuals?
According to Gibbons, generally speaking, individuals will see a tax decrease. The IRS recently issued new withholding tables for income tax, to be used by payroll departments at businesses.
Married couples will be affected in the same manner as individuals. Gibbons said the new tax law did try to close the gap on some of the tax brackets to decrease the “marriage penalty” for higher income individuals.
Families with young dependents should see a decrease in their taxes due to an increased standard deduction and increased child tax credit to compensate for the loss of personal exemptions, Gibbons said. “However, as the dependents get older and the child tax credit is no longer allowed, they could possibly see an increase in tax due to no longer receiving the personal exemptions.”
This is the most complicated, varied question. He said that in general, businesses will see a decrease in their taxes. The new law allows for a 20-percent deduction from Qualified Business Income for S Corporation, partnerships, and Schedule C businesses. “This however is subject to some limitations and phase-outs for higher income taxpayers,” he said. For C Corporations there is now a flat 21-percent tax rate that is much lower than the old graduated rate system.
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