Monthly Archives: January 2018

Lower Tax Brackets = Higher Taxes?

The recent tax law changes have lowered the tax brackets starting in 2018, but that does not necessarily mean lower taxes. This is due to the elimination or reduction of items that are no longer deductible. Deductions that have disappeared include, but are not limited to:

Personal exemptions: This will have the most impact on taxpayers who claim their adult children or parents. However, this may be offset somewhat by a partial credit.

Miscellaneous deductions: Sales people who have to incur out of pocket expenses or who use a home office will be greatly affected.

State and local taxes: The deduction is now limited to $10,000 for property taxes and state income taxes. This mostly impacts us here in North Jersey because we have such high property and income taxes. However, many taxpayers in this area are subject to the Alternative Minimum Tax (AMT), so their deductions would normally have been limited anyway.

Mortgage interest and home equity loans: No deduction for home equity loans, and a lower threshold of $750,000 for new mortgages.

The list goes on and on, but includes either limitations or eliminations of moving expenses, alimony payments (for divorces after 2018), entertainment deductions, like-kind exchanges, business losses, etc.

On the plus side the child tax credit has been increased to $2,000, along with the thresholds to claim this credit. Also, the standard deduction has almost doubled. Every situation is different and must be looked at on a case by case basis.

What’s Your New Tax Bracket?

The recent tax laws have not only changed the income tax rates, but have also expanded the income that falls within each bracket. Here’s an example of the old rates vs. the new rates for married individuals filing a joint return:

Old Brackets:

Rate                       Taxable Income

10%                        $0 – $19,050

15%                        $19,051 – $77,400

25%                        $77,401 – $156,150

28%                        $156,151 – $237,950

33%                        $237,951 – $424,950

35%                        $424,951 – $480,050

39.6%                    $480,051 +

 

New Brackets:

Rate                       Taxable Income

10%                        $0 – $19,050

12%                        $19,051 – $77,400

22%                        $77,401 – $165,000

24%                        $165,001 – $315,000

32%                        $315,001 – $400,000

35%                        $400,001 – $600,000

37%                        $600,001 +

 

There are other numerous changes that will impact your overall tax liability, including but not limited to the suspension of personal exemptions, expansion of the standard deduction, itemized deduction limitations (especially for state and local taxes), and lastly, the change to corporate tax rates.