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The changes to the new tax law may have you left with many unanswered questions. I want to make sure that you’re able to understand the key points to the changes in the Tax Reform.
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Top 12 Things You Should Know About the New Tax Laws and Reform
1. We still have seven tax brackets for individuals, but the tax rates have changed.
You’ll notice that the rates for some of these brackets have been lowered compared to the 2017 brackets.
2020 Tax Bracket for those filing with single status:
- 10% tax bracket for income of $9,875 or less
- 12% tax bracket for income of more than $9,876 and no more than $40,125
- 22% tax bracket for income of more than $40,126 and no more than $85,525
- 24% tax bracket for income of more than $85,526 and no more than $163,300
- 32% tax bracket for income of more than $163,301 and no more than $207,350
- 35% tax bracket for income of more than $207,351 and no more than $518,400
- 37% tax bracket for income of more than $518,401
2020 Tax Bracket for those married and filing jointly:
- 10% tax bracket for income of $19,750 or less
- 12% tax bracket for income of more than $19,751 and no more than $80,250
- 22% tax bracket for income of more than $80,251 and no more than $171,050
- 24% tax bracket for income of more than $171,051 and no more than $326,600
- 32% tax bracket for income of more than $326,601 and no more than $414,700
- 35% tax bracket for income of more than $417,701 and no more than $622,050
- 37% tax bracket for income of more than $622,050
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2018 Taxable Income Brackets and Rates (Estimate)
| Rate | Single Filers | Married Joint Filers | Head of Household Filers | Married Separate Filers |
| 10% | Up to $9,525 | Up to $19,050 | Up to $13,600 | Up to $9,525 |
| 12% | $9,526 to $38,700 | $19,051 to $77,400 | $13,601 to $51,800 | $9,526 to $38,700 |
| 22% | $38,701 to $82,500 | $77,401 to $165,000 | $51,801 to $82,500 | $38,701 to $$82,500 |
| 24% | $82,501 to $157,500 | $165,001 to $315,000 | $82,501 to $157,500 | $82,501 to $157,500 |
| 32% | $157,501 to $200,000 | $315,001 to $400,000 | $157,501 to $200,000 | $157,501 to $200,000 |
| 35% | $200,001 to $500,000 | $400,001 to $600,000 | $200,001 to $500,000 | $200,001 to $300,000 |
| 37% | $500,000+ | $600,000+ | $500,000+ | $300,000+ |
2017 Taxable Income Brackets and Rates (Estimate)
| Rate | Single Filers | Married Joint Filers | Head of Household Filers | Married Separate Filers |
| 10% | $0 to $9,325 | $0 to $18,650 | $0 to $13,350 | $0 to $9,325 |
| 15% | $9,326 to $37,950 | $18,651 to $75,900 | $13,351 to $50,800 | $9,326 to $37,950 |
| 25% | $37,951 to $91,900 | $75,901 to $153,100 | $50,801 to $131,200 | $37,351 to $76,550 |
| 28% | $91,901 to $191,650 | $153,101 to $233,350 | $131,201 to $212,500 | $76,551 to $116,675 |
| 33% | $191,651 to $416,700 | $233,351 to $416,700 | $212,501 to $416,700 | $116,676 to $208,350 |
| 35% | $416,701 to $418,400 | $416,701 to $470,700 | $416,701 to $444,550 | $208,351 to $235,350 |
| 39.6% | $418,401+ | $470,701+ | $444,551+ | $235,351+ |
2. The standard deduction has almost been doubled.
- For single taxpayers, the standard deduction has increased from $6,350 to $12,000
- Head of household $9,350 to $18,000
- Married filing jointly, it’s increased from $12,700 to $24,000
The increases will possibly push more taxpayers to take the standard deductions versus itemizing their deductions.
3. No more personal or dependent exemptions.
For example, in the previous tax year, you could claim a personal exemption for yourself and spouse if married of $4,050. In addition, you could claim $4,050 dependent exemption for each qualified dependent.
That is no more.
Here are some examples of how these changes will affect most taxpayers:
Please be advise that these calculations are estimates and do not include adjustment or credits.
| Single Filers | ||
| Deductions | 2017 | 2018 |
| Standard Deduction | $6,350.00 | $12,000.00 |
| Exemptions | $4,050.00 | $0.00 |
| Total | $10,400.00 | $12,000.00 |
| Deductions | Deductions | Deductions |
| Deduction Increase $1600 |
| Married Joint Filers No Dependents | ||
| Deductions | 2017 | 2018 |
| Standard Deduction | $12,700.00 | $24,000.00 |
| Exemptions | $8,100.00 | $0.00 |
| Total | $20,800.00 | $24,000.00 |
| Deduction Increase $3200 |
| Married Joint Filers + 2 Dependents | ||
| Deductions | 2017 | 2018 |
| Standard Deduction | $12,700.00 | $24,000.00 |
| Exemptions | $16,200.00 | $0.00 |
| Total | $28,900.00 | $24,000.00 |
| Deduction Loss $4900 |
| Head of Household + 2 Dependents | ||
| Deductions | 2017 | 2018 |
| Standard Deduction | $9,350.00 | $18,000.00 |
| Exemptions | $12,150.00 | $0.00 |
| Total | $21,500.00 | $18,000.00 |
| Deduction Loss $3500 |
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4. Mortgage interest deduction has been lowered from $1 million to the first $750,000 of your mortgage debt.
This change will only affect new homeowners, so if you are a current homeowner then you’re okay.
5. The moving expense deduction has been eliminated.
Exceptions apply to member of the military.
6. The child tax credit has increased.
The child tax credit has doubled from $1000 to $2,000 for children under 17. The full credit can be claimed by single parents (HOH) who make up to $200,000, and married couples (MFJ) who make up to $400,000.
The credit will begin to phase out once you hit those income limits.
Note: The refundable portion of the credit is limited to $1,400.
7. The state and local tax deduction is now capped at $10,000.
8. Major changes for 529 savings accounts.
In previous years, untaxed money put into a 529 savings accounts could only be used for college expenses.
Now, up to $10,000 can be distributed annually to cover the cost of sending a child to a public, private or religious elementary or secondary school.
9. Tax deduction for alimony payments will be eliminated.
This provision will apply to couples who signed divorce or separation paperwork after December 31, 2018.
10. Tax preparation deduction will be eliminated.
In previous tax years, you could deduct the cost of having your taxes done by a tax advisor or the money on a tax prep software. This deduction will no longer be available.
11. A decrease in the corporate tax rate.
The corporate tax rate will be cut from 35% to 21%.
12. The individual mandate on health insurance (Obamacare) will be eliminated.
The elimination of the individual mandate, which penalizes people who do not have health care, goes into effect in 2019.
Final Thoughts on the New Tax Laws
I hope this article helped you gain some control of your tax plan this year. Remember not to stress out. Don’t forget to check out Tax Forms page for any additional online tax checklists and forms you may need this year.
If you enjoyed this article, then you’ll love these:
- Best Rules for Claiming a Dependent on Your Tax Return
- When and How to Claim Tips on Your Tax Return
- Do I Need to File a Tax Return?
- How to Choose the Best Filing Status
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Until the next money adventure, take care!
Handy
Disclaimer Statement: All data and information provided on this site is for informational purposes only. The Handy Tax Guy makes no absolute representation of the correctness, mistakes, omissions, delays, appropriateness, or legitimacy of any information on this site. **Note: Each client circumstance will vary on a case-by-case basis**
