By Mia Kitner
The Tax Cuts and Jobs Act of 2017 became law in December, resulting in many changes to the U.S. tax code. Here are a few highlights. (Please note none of these changes will affect your 2017 tax returns.)
1. Individual Tax Rates
Seven brackets remain; however, the rates have changed. The new tax rates are 10%, 12%, 24%, 32%, 35%, and 37% (until 2025). In 2018, "take-home" pay will increase for many, and you can find out what your new tax rate is by going here: https://goo.gl/PLEMoy.
2. Standard Deductions
The standard deduction allows taxpayers to reduce their taxable income. Starting in 2018, the standard deduction has nearly doubled from $6,350 to $12,000 for single filers, from $9,350 to $18,000 for head-of-household filers, and from $12,700 to $24,000 for married couples filing jointly.
3. Itemized Deductions
The personal exemption is no longer available, and state and local taxes deductions are now capped at $10,000. Charitable contribution deductions remain. Medical deductions must exceed 7.5% of your AGI. New homebuyers' mortgage interest deductions are now capped at $750,000 in mortgage debt.
4. Advisor Fees
Taxpayers will no longer be able to deduct their investment advisor fees or expenses even if they itemize their deductions. The same rule also applies to tax preparation costs whether your tax returns are completed by a professional or using a tax preparation software.
5. Dependent Tax Credits
The child tax credit may benefit more taxpayers, as it was doubled to $2,000 for children under 17 and it's now available to those making up to $200,000 if single or $400,000 if married. In addition, a new $500 temporary tax credit applicable for non-child dependents has been created.
6. 529 Plans and Coverdells
Previously, 529 plans were limited to college expenses, but now up to $10,000 can be used for qualified public, private, or religious elementary K-12 education expenses. Note: Taxes may be due in some states, though. Coverdell plans remain unchanged.
7. Roth Recharacterizations
In the past, if you converted a traditional IRA (individual retirement account) or a portion of one into a Roth IRA, you were allowed to undo that conversion. Under the new tax law, any conversion from a traditional IRA to a Roth IRA can no longer be recharacterized.
8. What This All Means
With the biggest tax reform since 1986, many things have changed. The increase in the standard deduction will cause more taxpayers to file simpler returns without itemizing. While this might make filing your taxes simpler, we recommend you always consult with a tax professional for expert advice.
Northstar Financial Planners does not provide tax advice. Please consult with a qualified tax planning professional. This is not a solicitation for any investment product. Always read the prospectus before you invest. Past performance is no indicator of future returns. Northstar Financial Planners is a fee-only financial advisor and sells no investment products.