The Tax Cuts and Jobs Act will be signed by The White House as an official law soon. Once enacted, it will change the tax strategies of everyone from individuals to large corporations. All will work to reduce taxes they paid in the past will be updated with plenty of opportunities to do so in the coming years. The new law is full of new cuts, deductions, etc. Below are some must read tax cut and jobs act analysis tips that can help you take advantage of the new tax law in the coming years.
1. Tax Cut and Jobs Act Tax Brackets for Individuals
Although we were promised fewer tax brackets, the standard seven tier bracket still applies for individuals. Lower taxes for all make up for it. According to The Tax Foundation, the new rates as the bill is now will be:
- The first bracket of 10% remains unchanged.
- 15% bracket of $525 to $38,700 drops to 12%.
- 25% bracket of $38,700 to $60,000 drops to 22.5%.
- 28% bracket of $60,000 to $170,000 drops to 25%.
- 33% bracket of $170,000 to $200,000 drops to 32.5%.
- 35% bracket of $200,000 to $500,000 remains at 35%.
- The 39.6% bracket of $500,000+ drops to 38.5%.
These figures are adjusted for those who were in higher brackets to lower ones. For example, the old 25% tax rate applied to those making between $38,700 up to $93,700.
2. Tax Cut and Jobs Act Tax Brackets for Couples
These brackets apply to joint filers for ordinary income:
- The 10% bracket of $0 to $19,050 remains at 10%.
- 15% bracket of $19,050 to $77,400 drops to 12%.
- 25% bracket of $77,400 to $120,000 drops to 22.5%.
- 28% bracket of $120,000 to $390,000 drops to 25%.
- 33% bracket of $390,000 to $450,000 drops to 32.5%.
- 35% bracket of $450,000 to $1,000,000 remains at 35%.
- The 39.6% bracket of $1,000,000+ drops to 38.5%.
These figures have been adjusted in earning amounts as well. For example, the old 35% tax rate applied to those making between $424,950 only up to $480,050.
3. New Tax Rates for Businesses
Here at B&J Bookkeeping, we specialize in helping professionals set up and maintain businesses of all kinds throughout the state of Texas. The new act will have tax rates that apply to them.
The big news is that corporate taxes are getting cut from 35% to 21%. It does not apply to all sorts of corporations. The good news is this one move is expected to bring in over $1 trillion in new income, investments, etc. The new bill eliminates the alternative minimum tax for corporations. It remains for individuals. Their rate of exemption is up to $500,000 for single taxpayers and $1 million for couples.
Sole proprietorships, joint ventures, LLCs, S corporations, and other pass-through businesses are not taxed as traditional corporations. Their income is accounted for in the owner’s personal tax returns. The newest bill gives businesses a 20% deduction for the first $315,000 in joint income.
4. Other Business Tax Cut and Jobs Act Analysis
Businesses will have new rules under this law. For example, it establishes a 17.4% deduction of qualified business income in certain pass-through businesses. Service industries such as law, health, and other professional services are excluded. Joint filers with income less than $150,000 and others with income less than $75,000 can fully claim the deduction income from service industries.
The bill limits carry forwards to 90% of taxable income. It also eliminates net operating loss carrybacks.
5. Other Key Takeaways from the Tax Cut and Jobs Act
- You will no longer be penalized for not having healthcare insurance (as was done previously by the Affordable Care Act).
- The Child Tax Credit allows you to claim a $2,000 credit for each qualifying child under the age of 17. It also applies to single filers and married couples.
- Estate tax exemption will rise from $5.6 million to $11.2 million.
- The act will generate an estimated $1.26 trillion in additional revenue over the next 10 years.
- The act will create an estimated additional 925,000 full-time jobs.
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