How Will Your Taxes Change Based on the New Tax Plan
The new tax plan, may after all, be quite beneficial for the ordinary taxpayer. Some of the cuts promise much smaller numbers on your tax bill, but of course, this won’t work as prescribed for each and everyone of us. We thought we’d give you an overview of how your taxes will change under the new tax law so that you can calculate the final outcome of the tax reform in your personal case.
The standard deduction has been nearly doubled from $12,700 for a married couple filing jointly to $24,000. This means that they can take out $11,300 more than they were able before the tax reform. We should note, however, that the personal allowance has been eliminated, which will impact single taxpayers. They will still benefit from the increase in standard deduction, but the difference won’t be as big as the difference for married couples. Speaking in numbers, that will amount to $3,500.
In the past people preferred using itemized deduction to standard deduction, because it used to save them more in taxes. However, with the new tax plan, itemizing deductions doesn’t really make that much sense. Let’s see why:
- Medical expenses – the deduction for medical expenses has been reduced by 2.5% from 10% of the adjusted gross income. It’s now 7.5%
- Mortgage interest – you can now deduct mortgage interest only for mortgages up to the amount of $750,000. Previously, the threshold was $1 million.
- Charitable donations – the new tax plan allows deductions for up to 60% of the taxpayer’s income, but donations to colleges in exchange for athletic events tickets will not be deductible any more.
- Casualty and theft – this deduction is eliminated.
- Unreimbursed employee expenses and other miscellaneous expenses will also no longer be available for deduction.
So in vast majority of the cases, standard deduction will be greater than itemized deduction, which makes it unnecessary.
The SALT deduction has been reduced to only $10,000, which is a problem for taxpayers living in expensive states such as California, Miami, New York and more. The state governors are trying to come up with creative ways of offsetting the potential loss taxpayers will experience, but as of now, nothing has been confirmed.
Good news for parents, especially those with more children. Child Tax Credits, available to qualified children under 17 are now increased to $2,000 with the new tax plan as opposed to $1,000 previously. The non-refundable tax credits are also increasing to $1,400. An even more significant change is the lift in the phaseout threshold. For married couples it is now $400,000 from $110,000 and for single parents it is $200,000 from $75,000.
The new tax plan also brings a big relief to most business. The Congress introduces a new flat corporate tax rate of 21%. It is a massive tax cut, designed to simplify the system and, more importantly, make the U.S. preferred business destination as the average corporate rate around the world is 25%. This means that if your organization makes over $50,000 a year, you will be paying less taxes than before. In addition, you may also qualify for business expenses deductions that can make a substantial difference in your final tax bill.
So if you would pay $60,000 in taxes with the previous system, using the same taxable income and types of deductions, with the new tax plan you will end up paying just about $10,000. This is a serious difference!
If you are still unsure how to fill your tax return to minimize your due tax or feel confused about some of the changes, get in touch with us. Call or email at email@example.com and one of our tax experts will get back to you with valuable information and advice.
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