You may have heard there are some big potential tax changes brewing. These aren’t a sure thing yet (at least at the time I’m writing this), but it’s looking like there is a pretty good chance. If you decide to take a pass on reading the actual 500+ page tax bill, here are some of the key changes and how they might affect you.
No health insurance mandate. Health insurance not your thing? Now you won’t pay a penalty on your taxes if you decide to go uninsured.
Individual tax brackets are changing. Most Americans will have Uncle Sam take a percent or two less out of every dollar earned starting in 2018. You can see where you’ll fall in the new tax brackets HERE.
Corporate taxes are changing too. There will be a lot of differences in how corporations are taxed, but unless you’re a part of a corporation, I’ll spare you the details. If you are, talk to your accountant (you’ll likely be pleasantly surprised).
Standard deductions are doubling. Right off the bat, I’ll say that this is a concept that a lot of people don’t fully understand, so HERE is a great 3-minute video explanation if you’re one of them. The new law will roughly double the standard deduction to $12k for individuals and $24k for couples.
What will this mean for you? If you normally itemize or “write-off” things like your mortgage interest, property taxes and charitable contributions, you’re going to need a lot more of them before they do you any good. For example, if your only deduction used to be interest from a $500k mortgage, it will likely no longer help, because the interest will be less than the $24k deduction.
Normally take the standard deduction? Good news, your tax bill most likely is going to go down for 2018.
Two big changes to what you can deduct. You used to be able to itemize unlimited amounts of state income and property taxes, but that will now be capped at $10k. You’ll also be limited to interest on the first $750k borrowed if you buy a new house.
The child credit is doubled. For every eligible kid you have, the IRS now gives you $1k off your tax bill; that will be increased to $2k starting in 2018.
Increased AMT exemption. This is a long and complicated one, but if you’re subject to it, you’d likely know. Going forward the limits are much higher, so there’s much less of a chance you’ll be hit with it.
Big increases in the estate tax exemptions. Have a rich Aunt Betty? Odds are you won’t pay any taxes when she leaves you her fortune. Individuals will be able to pass on $11 million tax-free and $22 million for couples.
There have also been a lot of potential changes floating around the last few months that never made the final proposed bill. Here are some rules that will remain mostly unchanged:
Adoption tax credits
Student loan interest
The earned income tax credit
Home sale profits (still up to $500k if you lived there 2 out of 5 years)
Deductions for IRA and 401k contributions
Electric car tax credits
Medical expense deductions
What can you do now? If you think you’ll itemize this year, but not next, talk to your CPA to see what deductions you might be able to move into this year; for example, making that donation to charity this year instead of next. If you’re a small business owner ask about delaying earnings until next year if you’ll be in a lower tax bracket.
And speaking of talking to your CPA, this is the part where I have to give the obligatory “this isn’t tax advice, talk to your accountant, I’m not responsible” disclaimer…
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