Recently, the Congress passed a major tax reform that can significantly impact the 2018 tax year. The tax reform contains aspects of retirement savings and changes in tax provisions.
The standard deductions for married couples have increased. Married couples who jointly file for tax will face a standard deduction of $24,000, an increase of $11,000 from the standard deductions mentioned in the previous tax law. Taxpayers who are single or file separately despite being married will face an increased standard deduction of $12,000, an increase of almost $5,500 from the previous law.
Individuals who earn $500,000 or more in a year will have a new top income tax rate of thirty-seven percent. The top rate is also applicable for a married couple who file jointly for an income of $600,000 or above.
The exemption for estate taxes has been doubled for single owners and for married couples as well. For individuals, the exemptions stand at $11.2 million and for married couples, it stands at $22.4 million.
Mortgage loans that were taken after December 15, 2017, will face a deduction of interest up to a maximum of $750,000. Mortgage loans taken before the stipulated time have no change in the maximum limit for the deduction of interest. It is still $1 million.
Individuals who participate in retirement plans such as the 401K can contribute up to $18,500 a year towards their savings. The new tax reform increased the previous amount by $500.
Under the new tax bill, all personal exemptions have been eliminated as of 2018. The personal exemption is the tax deduction applicable to personal income. The amount is adjusted according to inflation.
According to the child tax credit, each child under the age of seventeen is entitled to a certain amount as a credit. Up until now, the credit was limited to $1,000. Under the new tax bill, the credit has been raised to $2,000.
As per the changes made in the new tax bill, state taxes on income and property will be limited to $10,000. The same is applicable for local taxes as well.
In total, the new tax reforms seem to have a lot of benefit for the majority of taxpayers. For those taxpayers who had or have a negative outlook on the new tax reforms, it would be wise and beneficial to take a closer look and understand the new laws and how it would impact them.