At the start of 2018, a new tax reform act was brought into effect by the United States government. The reform brought changes to U.S. tax laws, and some tax filers may be left with questions. If this sounds like you, I’m here to help. I will explain what you need to know about the new tax laws before you file your taxes.
To start, let us discuss one of the biggest changes that this new tax laws bring along: new income tax brackets. For the previous year, tax brackets stood at 15%, 25%, 28%, 33%, 35%, and 39.6%. These brackets have now been lowered to 10%, 12%, 22%, 24%, 32%, 35%, and 37%, respectively.
Standard deductions have also been changed as a result of the tax reform. This is the amount of money that you separate from your income so it will not be taxed. You can either go with the standard deduction, or you can itemize your deductions upon filing your taxes. With the new tax law, standard deductions have increased substantially.
To show an example, single filers originally had a deduction of $6,350, but this amount has now been raised to $12,000. To cut a long story short, standard deductions have almost doubled for most taxpayers following the passing of the new tax reform. With this change, many taxpayers may forgo itemizing deductions, since the standard deduction is substantially higher.
Another important change I would like to discuss with you deals with state and local tax deductions (or SALT). With these deductions, taxpayers could include state income taxes, as well as sales taxes during the process of itemizing deductions. Before there was no limit to this process, but with the new tax reform limitations have been put into place. The lack of a limit was beneficial to citizens in states with higher property taxes, like New Jersey. If you live in New Jersey, you may feel a substantial change.
Tax laws regarding children have also changed, and one of them deals with the child tax credit. For a quick refresher, child tax credit can help give a financial boost to parents raising children under the age of 17. Before, parents would receive $1,000 per child, but with the new reform the credit has been doubled to $2,000. Up to $1,400 of this credit can qualify as refundable credit, so it can used as part of your tax refund.
After filing returns, especially when clients see a friendly refund check, I am often asked about the importance of financial planning and consulting. I always advise clients to consider financial planning for their future. By working with an established financial advisor, you can effectively manage your income and increase capital over time.
I would like to recommend one particular financial planner. His name is Peter Grandich. Known as the “Wall Street Whiz Kid”, Peter was a well-known financial commentator before forming his own financial firm: Peter Grandich and Company. He is an extremely talented individual, and one that I respect greatly.
He specializes in retirement, business and estate planning, and since 1984 he has taught business owners, athletes, and individuals how to make better financial decisions. I recommend that you visit his website to learn more about how Peter Grandich and Company can work with you.
