The change of tax laws under the Tax Cuts and Jobs Act of 2017 (TCJA) is the biggest change in the last 30 years. Tax brackets are updated to adjust with current inflation.
It simplified the tax code and made a flat corporate tax rate to an effective rate of 21%.
Across the board it lowered tax rates, the main difference is Individuals have temporary a tax cut while corporate tax rates will have a flat permanent rate.
Since the last tax filing season of April 2019, we have seen the differences from the prior years and how individuals are affected by the changes.
Here are a few situations that your personal finances might be affected.
Higher Federal Income Tax Brackets
Income Tax Brackets have increased to coincide with the standard deduction increase.
| TAX RATE | SINGLE | MARRIED | HEAD OF HOUSEHOLD |
| 10% | $0 | $0 | $0 |
| 12% | $9,700 | $19,700 | $13,85 |
| 22% | $39,475 | $78,950 | $52,850 |
| 24% | $84,200 | $168,400 | $84,200 |
| 32% | $160,725 | $321,450 | $160,700 |
| 35% | $204,100 | $408,200 | $204,100 |
| 37% | $510,300 | $612,350 | $510,300 |
Standard Deductions Increased
The increase in the standard deduction to lower your taxable income, and save you time in the long run. The caveat for this is the personal deductions are phased-out.
Standard Deductions for 2019
– Single- $12,200
– Married filing Joint- $24,400
– Head of Household- $18,350
Your tax rate will be determined by your income and where you fall on the table above.
Example:
If your single and making $60,000/ yr. Deduct $12,200 for the standard deduction.
Your Taxable income will be $47,800. You fall in the 22% tax bracket range.
Same principle for joint filers too.
Just a reminder for Head of Household filers, you need to take care of a dependent at least 50% of the tax year.
It’s important to keep the receipts of incurred expenses for reference in the future.
Medical Expenses
It’s not your medical insurance payments. These are eyeglasses and supplies, diabetes supplies and monitoring kits, medical weight loss programs, birth control kits, etc.
If it exceeds 10 percent of your adjusted gross income you can opt to itemize your deductions
Also, a health savings account (HSA)
The full list for qualified items is the IRS publication 502 and will state the details of the deduction.
Home mortgage interest- Primary home only and limited to $750,000 amount of indebtedness.
Charitable deductions- if you donated all your
SALT- limited to in local
In lieu of the increase in the standard deduction, personal exemptions are gone.
No more Healthcare penalty
If you didn’t have any healthcare coverage for 2019, you don’t need to worry about any penalty.
The tax update eliminated the individual mandate.
Home Office Deductions
When you use a specific part of the house for your side hustle, you can deduct part of your mortgage payments for that.
You need to take a picture of the room that you use and measure it. This will determine the percentage deduction that will be used.
Business Tax Cuts
As stated earlier, the biggest and permanent tax cuts are for the business owners.
Tax Brackets are not applicable to business filers, thus it does not have the same limits as individual returns.
It solidifies the corporate tax code to 21% for sole proprietors, S corps, LLC and partnerships.
Business owners are able to deduct 20% of their business expenses, thus lowering their tax liability.
Plus, Businesses will be able to write-off 100% capital expenses rather than gradually over several years.
Review your tax returns last year
If you have a significant life tax change, just bought a home, got married or just had a baby. Your tax bracket might change significantly and will depend on your salary.
These changes require a second look at your tax situation.
Consult your tax professional on how you’ll be affected in terms of your personal finances.
The bottom line is, the individual tax cuts will phase out and corporate tax cuts are permanent.
New tax laws and rules are regularly happening. Some changes might affect your tax liabilities and more importantly your refund.
An important key is knowing your particular situation and how you are affected.
We are glad to and answer any of your tax questions. Plus scheduling is easy. Let us know!
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