Taxes are changing in 2018 and you need to know about it! In this quick and dirty guide you'll learn what you need to know about the 2018 tax reform quick!
Taxes can be a really boring topic, but it’s changing big time. It’s so good to know and understand how the tax system is changing so you can take advantage of the changes.
Rich people everywhere are hiring accountants to review the tax changes to figure out how they can pay as little taxes as possible. Why can’t you do the same?
You can. This quick guide will at least get you started.
The tax reform is final and it’s going to affect all of us. It’s a mediocre plan at best. It definitely benefits the rich more than regular income earners, but did we expect any less from a billionaire president and a bunch of rich senators?
They don’t look out for you. You have to look out for you.
As Trump said, if you’re rich, you’re about to get a lot richer. For us normal people who don’t already make millions how will this affect us?
I’m gonna break down all the major changes and show you how this will affect you.
Here’s what is changing:
YOUR PAYCHECK IS GOING UP
Your paycheck will most likely increase starting in February of 2018 a bit. This is because your employer will deduct less from paychecks based on the new tax rates. This is a good thing for most everyone. Who could complain about a bigger paycheck?
TAX RATES ARE GOING DOWN
Let’s get right to the main change for most people. The actual tax brackets are changing and mostly for the better. Here is a chart of the changes from Heritage.org:
Hopefully you see a good reduction in your tax bracket. This means a smaller tax bill at the end of the year and possibly a bigger return if you get a return when you file your taxes.
THE STANDARD DEDUCTION AND OTHER DEDUCTIONS ARE CHANGING
The Standard Deduction is going up. This is good!
If your single, your standard deduction is going from $6,350 to $12,000. If you are married filing jointly, your standard deduction is going from $12,700 to $24,000.
This amount is taken off your income when calculating your taxes first. This is great but, the downside is they eliminated personal exemptions.
You use to be able to deduct $4,150 per each person claimed, which was very useful if you had several kids. If you have more than 3 kids, this will ultimately hurt you… (eye roll and head shake here)…
You can still use various deductions like student loan interest, charity contributions, retirement savings, and mortgage interest to name a few. If they exceed your standard deduction then they will still benefit you.
You can deduct up to $10,000 of your state and local taxes. This is a new limit and will affect people in high tax states the worst.
There are some new exceptions and many deductions like alimony and moving expenses for example are going away. (again why???)
If you have big medical expenses you can now deduct them if they are more than 7.5% of your income. This is better than before when it was 10%.
THE ALTERNATIVE MINIMUM TAX IS STILL GOING
This is a tax that has been around for a while that is designed to keep wealthy individuals from avoiding paying taxes by creating a minimum tax. It shouldn’t affect regular people with normal income but it does.
They are increasing the income level that it affects you at from $54,300 to $70,300 for singles and $84,500 to $109,400 for those filing married joint. This is better but still affects regular income people too much.
CHILD TAX CREDIT IS INCREASING
If you have children this is helpful. For every child you list as a dependent you will get a $2,000 tax credit. This is up from $1,000 previously.
You must make at least $2,500 monthly in earned income to use this credit and unless your annual income is $200,000 or more.
Even if you don’t pay taxes you can still claim up $1,400 per child. This should be helpful to parents.
PASSTHROUGH BUSINESS TAX RATE
Now this may not affect you unless you have side hustle or are self employed. If you don’t just skip this part.
If you do have a side hustle or full time business and you file your taxes as a pass through business like sole proprietorships, partnerships, LLCs, and S corporations the standard deduction will now be 20%.
This is good if you have a business of course, but this is a loophole the rich are taking full advantage of. If you have a business you need to research this further. Even if you don’t, you have to wonder if you just took income as a contractor would be more beneficial than taking income as an employee.
Seems like this what an obvious loop hole for the rich as they will benefit the most on this one.
THESE TAX CHANGES ARE FOR A LIMITED TIME
Most of these changes are only good until 2026. Hopefully they are made permanent when the expiration comes up, but for now this is what we have and we’ll have to see what the future holds for tax reform.
CALCULATE HOW MUCH YOUR TAXES COULD CHANGE
Everyone's situation is different so it's best for you to figure out how this will affect you going forward.
To get a quick estimate of how the taxes could affect you, check out the New York Times calculator to estimate your change:
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