What are the tax reliefs available under the new 2018 tax reform law?
"Congress has passed the largest piece of tax reform legislation in more than three decades. The bill went into place on January 1, 2018, which means that it will affect the taxes of most taxpayers for the 2018 tax year."
Lower Tax Rates and Changed Income Ranges
The bill retains the seven tax brackets found in current law, but lowers a number of the tax rates. It also changes the income thresholds at which the rates apply.
The current brackets are: 10%, 15%, 25%, 28%, 33%, 35% and 39.6%
The new brackets will be: 10%, 12%, 22%, 24%, 32%, 35% and 37%.
Alternative Minimum Tax Exemptions Increased
The bill also eases the burden of the individual alternative minimum tax (AMT) by raising the income exempted from $84,500 (adjusted for inflation) to $109,400 married filing jointly and from $54,300 (adjusted for inflation) to $70,300 for single taxpayers, so fewer taxpayers will pay it.
Tax Relief for Individuals and Families
Increased standard deduction:
The new tax law almost doubles the standard deduction amount. Single taxpayers will see their standard deductions jump from $6,350 for 2017 taxes to $12,000 for 2018 taxes.
Married couples filing jointly will see an increase from $12,700 to $24,000.
Increased Child Tax Credit:
For, Families with children the Child Tax Credit is doubled from $1,000 per child to $2,000. In addition, the amount that is refundable grows from $1,100 to $1,400. The bill also adds a new, non-refundable credit of $500 for dependents other than children. Finally, it raises the income threshold at which these benefits phase out from $110,000 for a married couple to $400,000.
Eliminations or Reductions in Deductions
Personal and dependent exemptions:
The bill eliminates the personal and dependent exemptions which were $4,050 for 2017 and increased to $4,150 in 2018.
State and local taxes/Home mortgages:
The bill limits the amount of state and local property, income, and sales taxes that can be deducted to $10,000. In the past, these taxes have generally been fully tax deductible.
The bill also caps the amount of mortgage indebtedness on new home purchases on which interest can be deducted at $750,000 down from $1,000,000 in current law.
The bill eliminates the tax penalty for not having health insurance after December 31, 2018. It also temporarily lowers the floor above which out-of-pocket medical expenses can be deducted from the current law floor of 10% to 7.5% for 2017 and 2018
So for 2018, Taxpayers can deduct medical expenses that are more than 7.5% of your adjusted gross income as opposed to the higher 10%.
For LLC's and S Corporation Pass through Entities and the Self-employed small businesses.
The major law changes are as follows:
1. The biggest includes a reduction in the top corporate rate to 21%,
2. A new 20% deduction for incomes from certain type of ?pass-through? entities (partnerships, S Corps, sole proprietorships), subject to some qualification requirements and income limitations apply for certain types of professions.
3. Almost Doubling of the amount small businesses can expense from the 2017 Section 179 amount of $510,000 to $1,000,000,
4. Elimination of the corporate alternative minimum tax (AMT).