For a few months now, Americans have been trying to keep up with the GOP’s plan to cut taxes in a huge piece of legislation. It has taken many turns in the last few weeks, but recently passed through Congress and is awaiting the presidential seal of approval.
There are a lot of confusing parts of the bill, and many are unclear as to what effect- positive or negative- this will have on their lives. So it is worth taking a deeper look at what might be in store for citizens in the future because like it or not, change is on the way. This cannot reasonably cover all of the nuances of a large piece of legislation, but there were lots of rumors about what was inside. Some of that will be looked at now.
The Standard Deduction
The proposed law nearly doubles this because Republicans say that without the need to itemize deductions, it is easier to do taxes. In the bill, it specifies a $12,000 deduction instead of $6500 for a single taxpayer and a $24,000 deduction instead of $13,000 but with no additional exemptions for qualifying individuals. This means that the standard deduction could be smaller for families with multiple children, which was not the case before.
Since there may be a loss of exemptions, this is partly made up with a larger child tax credit of up to $2,000 per child. This credit is also refundable up to $1400 so that even people who do not owe anything on their federal income taxes can redeem the credit.
Nothing will be changing here, despite the talks of lowering the limit of 401(k) contributions. You will still be able to contribute up to $18,500 in pre-tax income into tax-preferred retirement accounts in 2018.
State and Local Taxes
For those who typically itemize these, the limit will be $10,000 and can include property taxes and either sales or income taxes.
The Estate Tax
According to the current legislation, the current estate tax exemption (taxes paid on estates only worth more than $5.6 million) will be doubled. Individual estates would not be taxed unless they were worth more than $11.2 million for a single individual.
Despite original versions of the bill that proposed elimination of some of the tax policies in place to benefit current students and college graduates, the bill that was passed with preserve these credits.
There is certainly no shortage of things to remember when it comes to taxes, but it is important to note that many of the changes are only in effect until 2025 and would then expire. With all of these changes and more in mind, it is key to stay up to speed with how things change in the transition process.