Taxes, everyone’s favorite subject.
There’s been a lot of buzz about the new tax reform bill this year. Change is always hard, and taxes are harder. And with all the changes taking place this year, the thought of filing your taxes can feel overwhelming at best. While most of these changes should simplify the process, a lot of people are wondering how this reform will impact them and their bank accounts.
The good news is there are some nice things in store for most people with the tax reform. Let’s walk through a few you should know before filing your taxes.
Updated Tax Brackets and Lower Income Tax Rates
The new tax brackets and income tax rates are one of the most talked about changes when it comes to the tax reform. The main thing you should know is that the seven tax brackets we already have in place will stay that way, but tax rates for each are going down through 2025. For example, if you’re single making $50,000 a year, your tax rate will drop from 25 percent to 22 percent. In 2026, these cuts will expire, unless there is another bill in the future that changes. For now, people are paying less in taxes.
The New Standard Deduction
The standard deduction is dollar amount that you’re able to deduct from your taxable income. Under the new reform, the standard deduction has nearly doubled! Before the reform, the standard deduction for an individual was $6,350. Now, it’s $12,000. For a married couple it used to be $12,700, and that has gone up to $24,000. So, if you’re single and would normally do an itemized deduction, if it equals less than $12,000 you would take the standard deduction instead.
Changes for Married Couples
Married couples will rejoice this tax season. Before the tax reform, some married taxpayers were bumped into a higher tax bracket when they combined their incomes. The new tax brackets have doubled for people filing jointly, so no more marriage penalties this time!
Updated Child Tax Credit
People with kiddos will be happy with at least one part of the new tax reform. Previously, parents who made less than $110,000 jointly and $75,000 individually received a $1,000 tax credit for qualified children under age 17. Now, that credit has increased to $2,000 and the income limits were raised to $400,000 jointly and $200,000 individually. If you have kids and fall below those income levels, that’s $2,000 back in your pocket!
More Reason to Give
If there wasn’t enough incentive for charitable giving before, there is now. Before these changes, taxpayers used to be able to deduct up to half of their income in qualified charitable donations. That limit has been increased to 60 percent of your income!
These are just a few of the changes from the reform. If you still feel overwhelmed, don’t worry. Even the IRS is scrambling to keep up with the changes this year. If there ever was a time to consider hiring a professional to do your taxes, this would be the time to do it. You don’t want to guess on your taxes!