Do you know how the affects individuals like you? How will new tax changes impact your finances and your family? Here’s the short answer: it depends on the amount of itemized deductions you typically make and the size of your family.
As the largest piece of tax reform legislation passed by Congress in more than 30 years, familiarizing yourself with each and every provision can be time consuming. To help you out, we picked out the top four tax changes impacting individuals like you. Take these into account when making major personal and family decisions throughout the year.
Tax change #1: New individual income tax rates
The new tax law dropped the maximum individual tax rate from 39.6% to 37%. Reference the chart below to learn which new bracket you fall under based on your individual circumstances. Understanding your new bracket can help you plan ahead when evaluating your personal finances.
Tax change #2: Limited state income, sales and property tax deductions
The Tax Cuts and Jobs Act limits individual taxpayers to $10,000 in state income, sales or property tax deductions. Before the tax reform became law, the state and local tax deduction (SALT) was unlimited.
This affects residents of states with high income taxes the hardest, such as California (13.3%), Oregon (9.9%) and Minnesota (9.85%). It also impacts residents of states with high sales taxes, like Louisiana (9.98%), Tennessee (9.46%) and Arkansas (9.3%). Florida has a combined sales tax rate of 6.8%.
Moreover, this limitation affects residents of states with high average property tax rates like New Jersey (2.35%), Illinois (2.3%) and New Hampshire (2.15%). Florida’s average property tax rate is 1.1%.
Tax change #3: Doubled child tax credit
Are you a parent? The new tax law doubles the child tax credit from $1,000 to $2,000 per child below age 17. It also permits parents to receive up to $1,400 (versus the previous $1,100) if the credit exceeds their federal income tax liability.
Additionally, the tax reform law increases the income threshold, giving parents with high incomes the opportunity to benefit from the credit. Single parents with an income of $200,000 or less can claim the full child tax credit (versus the previous $75,000 threshold), while married couples with an income of $400,000 can claim the full child tax credit (versus the previous $110,000 threshold).
While the increased child tax credit comes with direct benefits for families, it may be offset by the impact on larger families of the tax law’s elimination of the personal exemptions– particularly those in the lower and middle income classes.
Tax change #4: Increased standard deduction
The Tax Cuts and Jobs Act raises the standard deduction to:
- $12,000 from $6,500 for single filers
- $18,000 from $9,550 for heads of household
- $24,000 from $13,000 for joint filers
With this increase in standard deductions, you may be one of many taxpayers who don’t need to itemize deductions anymore. Unless your itemized deductions are greater than the new increased standard deductions, the additional impact of these deductions may be lost.
Please note that this list is not all-inclusive; as well. Reach out to me or another Kaufman Rossin professional with questions on how these tax changes may impact your personal finances. Don’t forget to reference the as well ─ it’s full of helpful information and tips regarding individual taxes.
Louis Balbirer, CPA, is a tax principal in Kaufman Rossin’s Fort Lauderdale office. Kaufman Rossin, one of the top CPA firms in the U.S., offers state and local tax services for individuals and businesses. Louis can be reached at email@example.com.