How The New Tax Reform (TCJA) Affects You
When it comes to finance and taxes, change is essential to ensure our tax systems keep up with the evolving requirements of the country and its people. The Tax Cuts and Jobs Act (TCJA) or Public Law No: 115-97, was introduced in 2018 for the same reasons, to reduce the tax burden and eliminate certain compulsions. However, tax reforms introduced for betterment can have pitfalls too, which makes it essential for taxpayers to understand new tax regulations and the changes they bring.
At Edrien Inc. we have analyzed the tax reform to simplify the main tax areas for the 2018 tax year. This year you will notice changes in the tax rates for all taxpayers, standard deductions and personal exemptions, schedule A itemized deductions, adjustment to income, child tax credit, individual retirement arrangement (IRA), and the affordable care act (ACA) shared responsibility payment.
a. New tax rates: For each income bracket the tax rates have been reclassified to 10%, 12%, 22%, 24%, 32%, 35%, 37% (the previous tax rate was: 10%, 15%, 25%, 28%, 33%, 35%, 39.6%).
b. Standard deduction and personal exemption: For married people filing their taxes jointly, the deduction is now $24,000 from $12,700; for the head of household, it is $18,000 from $9,350; for singles, it is $12,000 from $6,350. On the other hand, personal exemption will now be $0 from $4,050.
c. Schedule A itemized deduction: The itemized deduction line of 21 will be removed and replaced with no more work itemized deduction.
d. Child tax credit: It will be $2000 from $1000 per child tax credit.
e. Eliminations: Affordable Care Act (ACA) shared responsibility payment is now removed so people seeking medical services will not be penalized for not having health insurance.
The biggest benefit of the new tax reform is the tax rate reclassification bracket. It is a good thing because it reduces tax liability. Also, the new standard deduction and personal exemption are better for single individuals rather than a family. However, the new child tax credit of $2000 can help taxpayers who have dependents. They can benefit from the extra $1000 refund per child.
At the same time, ACA is no longer required, so penalties are no longer applicable. However, as ACA is not needed anymore, millions of American taxpayers will be out of health insurance, and hospitals and doctor can now charge people higher rates for any health care services provided.
Despite the downside, TCJA comes with the standard deduction and personal exemption are great adjustments. We predict that the Federal government will issue a higher refund versus the State. The purpose of giving more standard deduction benefits to so that the State will not have to release more payment towards taxpayer refunds.
In time, more changes will occur as part of the new tax reform, but it is too soon to predict the effect of the changes until all taxpayers file their 2018 tax return. The impacts of TCJA have already taken effect and are expected to last till the end of 2025. Edrien Inc. can assist you while filing your taxes subject to the new regulations and guide you towards smarter future tax planning free of charge as part of our many services.
With twenty years of experience as the best tax accountants in Baltimore MD, Edrien Inc.& will help you plan your finances efficiently, so you save money while filing your taxes. We have firsthand knowledge of recent changes to tax laws and financial regulations. Our clients receive cohesive services from skilled experts who abide by professionals ethics. We are well experienced in tax revenue filing, extensions, amendments, audit, and small business tax services.
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