The sweeping tax overhaul passed by Republic lawmakers in recent weeks will have an impact on the lives of American taxpayers in general and their tax returns in particular. While many provisions in the old tax law will remain, many more will change.
For taxpayers who have issues with the new tax law provisions, there’s good news: Many of them are only temporary since they will expire after seven years. Regardless of their effective date, nonetheless, it’s always best to be updated about the before-and-after in tax laws. Here are a few things to know in this regard.
The following provisions, by the way, in all three parts of the 3-part series will take effect in 2018, unless there’s a note to the contrary.
Tax Brackets
In both the current law and the new plan, there are seven tax brackets but with different top rates – 39.6% for the former and 37% for the latter. The qualified dividend rates and capital gains are also similar in both laws.
Under the new plan, the top rate will apply to single individuals with an income above $500,000 while for married couples, the top rate applies to income in excess of $600,000.
Exemptions, Credits, and Standard Deductions
Under the new plan, the standard deduction will be increased to $12,000 for a single individual and $24,000 for married couples with joint returns. Married couples with children can also avail of the child tax credit of $2,000 per child, of which up to $1,400 can be refundable credit. Taxpayers can also claim a tax deduction up to $500 for other qualified dependents (i.e., not their children).
But these new standard deductions are only temporary. By 2025, the exemptions and deductions will revert to the current tax law wherein single individuals can claim up to $10,400 in deductions. Married couples without children can claim up to $20,700 (i.e., deduction plus exemption) while married couples with two eligible children can claim up to $28,700 as well as a $1,000 tax credit for each child.
These provisions in the tax plan can be confusing for the average taxpayer, especially for those who have small businesses or who own property. The best course of action in these cases is to hire a reliable professional tax preparer from Liberty Tax Service, H&R Block, or Jackson Hewitt.
While you will still have ultimate responsibility for your tax return, you can at least rely on the professional tax preparer to make heads and tails of your income and deductions. You should still check your tax return but you can skip on the headache of preparing it.
