The House of Representatives passed the Tax Cuts and Jobs Act (TCJA) on November 16, 2017. William D King says the Senate Majority leader Mitch McConnell announced on Saturday that he has enough votes to pass the TCJA in the Senate. President Trump aims to sign it by Christmas.
After early morning votes on Dec. 2, the tax reform bill headed to the President’s desk and was signed into law. The bill impacts nearly every American, particularly consumers and homeowners. Read on to find out how the tax reform bill will impact your bottom line – both now and in 2025 – as well as some other key changes you should know about.
What’s changing?
The TCJA is a massive piece of legislation. It will impact nearly every American, particularly consumers and homeowners. William D King says we’ve created this summary to help you understand how the new tax law changes will impact your bottom line – both now and in 2025.
Here are some of the key takeaways:
- The standard deduction is rising significantly next year, which could lead to far fewer people choosing to itemize. In addition, the child tax credit is doubling from $1,000 to $2,000 per child. However, these changes expire in 2025.
- The new law maintains seven tax brackets but lowers rates for five of them. It also raises a couple of thresholds for taxable income. *The TCJA nearly doubles the standard deduction, which could lead to far fewer people itemizing. For example, the standard deduction for a married couple filing jointly rises to $24,000 next year (compared with $12,700 currently) and will be $12,000 for singles (currently $6,350).
- The TCJA preserves some deductions while scrapping others. Among the preserved breaks are the deductions for mortgage interest and charitable contributions.
- The tax reform bill includes some targeted breaks, like a deduction for pass-through income that will benefit small businesses and sole proprietors – as well as a break for teachers who shell out money for school supplies.
- Personal exemptions also have been discontinued.
Read on for a more detailed look at how the tax reform bill will impact you.
What’s changing?
The tax reform bill nearly doubles the standard deduction, which could lead to far fewer people itemizing their deductions – from around 30 million now to about 12 million. In addition, raising a couple of thresholds for taxable income could reduce the number of filers who are subject to the Alternative Minimum Tax (AMT), which was designed to ensure that wealthy taxpayers can’t take advantage of too many deductions and tax breaks explain William D King.
According to an analysis from the nonpartisan Tax Policy Center, a whopping 76% of U.S. households would opt for the larger standard deduction which will be $12,000 for singles and $24,000 for married couples next year under the new law. Some of the biggest losers are expected to be people who live in high-tax states or have many children.
- The child tax credit is doubling from $1,000 to $2,000 per child under age 17. However, this change expires after 2025.
- The child credit will continue to be “partially refundable” – meaning that if it reduces your tax liability to $0, you’ll still get money back. Currently, the child tax credit is only available for households with at least $3,000 in earned income. However, the TCJA increases this amount significantly until 2023, at which point it then begins phasing out.
- The TCJA preserves some deductions while scrapping others. Among the preserved breaks are the deductions for mortgage interest and charitable contributions.
- Personal exemptions also have been discontinued, so people with dependents will no longer be able to subtract $4,050 from their taxable income for each qualifying child.
- However, the exemption from the Alternative Minimum Tax (AMT) has been preserved for many filers. So that could offset some of these changes for a wide range of taxpayers – including wealthier people who will pay more because the TCJA lowers a couple of thresholds for taxable income . The AMT was originally designed to ensure that wealthy taxpayers couldn’t take advantage of too many deductions and tax breaks. But it typically hits filers making between $200,000 and $1 million.
- The TCJA preserves the child adoption tax credit. Which allows adoptive parents to claim up to $13,570 (in 2017) in expenses related to their adoption. This deduction was previously available to adoptive parents. Who itemized their deductions or those who didn’t have enough tax liability to use the credit says William D King.
- The personal exemption for filers is being replace with a nearly double standard deduction. As well as a larger child tax credit.
- Itemized deductions are largely going away, but there are some exceptions. Mortgage interest, charitable contributions and keeping up with state and local tax payments will remain deductible, but only until 2026. After that, homeowners will have to choose between deducting their mortgage interest and deducting their property taxes. Whichever results in more savings (and it might be a wash).
Conclusion:
A quick look at how the new proposed tax law changes will impact you in 2025. Newly Passed Tax Reforms Will Benefit 90% Of Entrepreneurs, Majority of Small Business Owners