Understand the new tax code

On December 22, 2017, the Tax Cuts and Jobs Act received Congressional approval and tax reform was passed for the first time since 1986. This new reform leaves many of us wondering what will be different in the season. tax 2019. and how it will help or hurt the economy. There are many different factors that will determine whether or not you will benefit from the new bill, and that makes a lot of people nervous. While doing your taxes might not always be the most enjoyable experience you can think of, it is one of the most important. Knowing about the updates involved in the new tax reform and the possible ways it could affect your situation can help you prepare for the next tax season and potentially prevent you from what could be a costly mistake.

In an attempt to simplify the tax code, the United States personal income tax return, better known as Form 1040, has got a whole new look. The new form, 1040 Simplified, appears to be simply simplified on the surface. This unique shape took the place of the 1040A, 1040 and 1040EZ. The size of the new form has been significantly reduced: the draft released by the IRS in June has about half the lines of the original 1040. Half the size should indicate half the job, but unfortunately that doesn’t appear to be the case. According to the IRS, there have been at least six new schedules that will accompany the new 1040.

These six schedules are in addition to the current schedules, which means that in fact there are more forms to fill out just to get a streamlined 1040. With the addition of these new schedules, there appear to be certain schedules that have been removed, such as Schedule B Regular Interest and Dividends and Schedule R Credit for Seniors or Disabled. But the IRS has yet to release full details.

New rules and parentheses

The new reform also made some changes to the tax brackets for the 2018 tax season. These new brackets will come into effect during the 2018 tax season and could help or hurt you mainly depending on location and bracket. of income. Overall, tax rates have been reduced for everyone from what they were in 2017, but taxable income will rise for many. In 2017, they were 10%, 15%, 25%, 28%, 33%, 35% and 39.60%. For 2018, they are 10%, 12%, 22%, 24%, 32%, 35% and 37%.

So, for many Americans, a tax cut is possible – depending, of course, on your particular situation. However, these tax reductions also come with a limitation on deductions. A reduced deduction for mortgage interest and a capped deduction for national and local taxes could have a big impact on your taxable income, especially when accompanied by the denial of deductions such as unreimbursed personnel expenses, expenses tax preparation, personal exemptions, family dependency exemptions and theft and loss of personal injury. These new rules could increase your taxable income and make tax cuts completely irrelevant.

In addition to changing the tax brackets, the Tax Cuts and Jobs Act also increased the standard deduction. If you are:

• Single (includes single and married returns separately): your standard deduction will increase from $ 6,350 to $ 12,000

• Head of family: your standard deduction will go from $ 9,350 to $ 18,000.

• Joint joint deposit: your standard deduction will increase from $ 12,700 to $ 24,000

Unfortunately, the personal exemption cannot be claimed in the 2018 tax year. This is big news for many of us and depending on your personal tax situation could decrease or increase. your tax payable. For example, if you were a single person with no dependents in 2017, you would have received a standard deduction of $ 6,350 plus a personal exemption of $ 4,050 (if no one else could claim you) which totals $ 10,400 , but in 2018 you will receive $ 12,000. Your tax liability may have been reduced in this situation with the new reform. However, if you were a married couple with three children in 2017, your standard deduction would have been $ 12,700 plus an additional $ 20,250, which totals $ 32,950. But in 2018, you will receive $ 24,000, so you may see an increase in your tax payable in the particular situation. With all the uncertainty surrounding the tax bill, there seem to be clear winners: married families without children, residents of low-tax states, and American businesses. With a tax cut from 35% to 21%, big business clearly had a winning hand.

With so many new changes coming into effect as of 2018 tax season, there will be many factors that will factor into whether you will receive a refund or owe. The tax code is already nearly 75,000 pages long and extremely complicated. Even with the new simplified 1040 and the appendices added, thousands of pages should be added to the tax code. Consulting your tax professional, registered agent, or CPA is always the best way to ensure you get the most out of the new tax reform and don’t make costly mistakes.

Source link

Comments are closed.