28 Feb How Will New Tax Laws Impact You?
You’ve seen all the news coverage. It’s been all over social media. The new tax laws that President Trump and Congress have passed. There’s so much speculation about how the new tax laws will impact everyone. There’s been a lot of misinformation!
We have studied the new tax laws. We’ve reviewed them thoroughly to find out what the major changes are. We want to help you understand the 5 of the biggest changes that will impact most Americans who will be filing taxes this year.
5 Tax Law Changes Every American Should Understand
- Child Tax Credit
Tax reform is a huge boom for families with young children!
The act increased the amount of the child tax credit to $2,000 per qualifying child. The maximum refundable amount of the credit is $1,400. The act also created a new non-refundable $500 credit for qualifying dependents who are not qualifying children. The threshold at which the credit begins to phase out was increased to $400,000 for married taxpayers filing a joint return and $200,000 for other taxpayers.
- Mortgage Interest
If your mortgage is NOT for $750,000 – $1,000,000 AND UP. You will NOT be impacted. The home mortgage interest deduction was modified to reduce the limit on acquisition indebtedness to $750,000 (from the prior-law limit of $1 million).
A taxpayer who entered into a binding written contract before Dec. 15, 2017, to close on the purchase of a principal residence before Jan. 1, 2018, and who purchases that residence before April 1, 2018, will be considered to have incurred acquisition indebtedness prior to Dec. 15, 2017, under this provision, meaning that he or she will be allowed the prior-law $1 million limit.
- Tax brackets
Individual tax rates are reduced from a max 39.6% to 37%. So in the past if you were paying a tax rate of 39.6%, you will see that reduced to 37%. Other tax brackets have been reduced also.
- Healthcare Mandate
If you do not currently have health care – you will no longer have to pay a penalty! The law ends the individual mandate, a provision of the Affordable Care Act or “Obamacare” that provides tax penalties for individuals who do not obtain health insurance coverage, in 2019. (While the mandate technically remains in place, the penalty falls to $0.)
- State and Local Tax Deduction
If your state and local taxes are higher than $10,000 you will see a change. You will not be able to deduct more than $10,000 of state and local taxes, this means your will pay more Federal Income Tax if you had previously deducted more than $10,000. The law caps the deduction for state and local taxes at $10,000 through 2025. The SALT deduction disproportionately benefits high earners, who are more likely to itemize, and taxpayers in Democratic states.
- Pass-through Income
Owners of pass-through businesses – which include sole proprietorships, partnerships and S-corporations – currently pay taxes on their firms’ earnings through the personal tax code, meaning the top rate is 39.6%.
The law creates a 20% deduction for pass-through income. Certain industries, including health, law and financial services, are excluded from the preferential rate, unless taxable income is below $157,500 (for single filers). To discourage high earners from re characterizing regular wages as pass-through income, the deduction is capped at 50% of wage income or 25% of wage income plus 2.5% of the cost of qualifying property.
We understand the new tax laws and are here to help you. You can make an appointment by calling us at (215) 844-9518 or email us.