In the US, one of the hottest recent topics in politics has centered around tax reform. With the IRS recently releasing several new tax changes for 2018 and the much talked about GOP tax reform, many Americans are worried about how the changes may affect how they file income taxes moving forward. However, if the Congressional Republicans eventually get their tax reform completed and accepted, it seems as though many of the new IRS tax changes won’t matter in the long run.
Top 5 Tax Changes You May Need to Prepare For
Standard Deduction is on the Rise
For 2018, the standard deduction will rise to help keep up with inflation. This means that married taxpayers will get a deduction that is $300 higher and those who file single will see an increase of $150.
But if tax reform passes, the standard deductions taxpayers see could vary drastically. For example, the 2018 standard deduction for single filers would be $6,500 and $13,000 for married taxpayers. While the GOP’s tax reform states that those with a single filing status would get a standard deduction of $12,000 and $24,000 for married couples who file jointly.
Personal Exemption is Higher
The personal exemption in 2018 will be $100 higher than last year, coming in at $4,150. This will be seen as another reduction of taxable income as well as a personal exemption. With this change, married taxpayers who file jointly and have 2 children can go ahead and take a total of 4 personal exemptions.
This higher standard deduction is meant to consolidate the personal exemption and the current standard deduction into one tax break, meaning that the personal exemption no longer applies. This change could cause income taxes to skyrocket for many Americans.
Tax Brackets are Headed Upward
The new 2018 IRS tax brackets include income thresholds that are slightly higher than they were in 2017. However, the 7 marginal tax rates will stay the same – 10%, 15%, 25%, 28%, 33%, 35% and 39.6%.
The Congressional Republicans would like to consolidate tax brackets down to just 3, with marginal rates of 12%, 25% and 35%. With their purposed tax reform there could also be a 4th bracket for those with higher incomes. Even though we have yet to get a clear idea of the income ranges included in these purposed tax brackets if the tax reform does pass your tax structure will look very different than it has in the past.
Wealthy Taxpayers Get a Greater Estate Tax Exemption
Estate tax laws in the US state that after you pass, a certain amount of your estate will be exempt from taxes. With the current excluded amount for 2018 coming in at $5.6 million per person or $11.2 million for married couples, the estate tax only applies to wealthy families.
The GOP has been working hard to get eliminate the estate tax for quite a while now and the most recent version of their purposed tax reform calls for the tax to be completely abolished.
AMT Exemption is Also Rising
The alternative minimum tax has been put in place to help ensure that those with a higher income will pay a fair amount of taxes each year, in addition to any deductions or tax credits they must pay. The IRS made changes in 2018 that will see AMT exemptions for single taxpayers at $55,400 and $86,200 for married couples who will file jointly.
Republicans want to do away with the AMT because they feel that it makes the tax system more complex than necessary and it affects many more middle-income taxpayers than it should. This is something that critics on both sides agree on.
Navigate Your 2018 Income Tax Planning Like a Pro
Worried about the effect that these recent changes could have on your income taxes? At France Law Firm we have the knowledge and skills necessary to protect your assets. Visit us online today for more information or to schedule an income tax planning consultation.