The New U.S. Tax Law Must-Knows | Werner Law Firm

The New U.S. Tax Law Must-Knows

The new Republican 2018 US tax law has fought a political battle to be here, and has seen much opposition and criticism by both the public and select economists, but the pessimism surrounding the GOP’s new tax law is unfounded and may even be misleading.

Regardless of whether you cash in your checks or run your own company, understanding the recent changes brought about by the GOP is crucial, not just for the rich but for anyone who considers themselves financially-conscious and well-prepared.

Understanding the New U.S. Tax Law

Signed into effect last year in December, the new tax bill has become law and changes the way taxes work in 2018. This does not, however, affect how you will be calculating your taxes for 2017 – which means that the new rules will not go into effect for the tax returns you will be filing this April, for income earned last year. They will, however, affect your tax returns next year.

To go over the basics, the new law has adjusted the ranges for all seven income tax brackets, and the personal exemption has been eliminated, while the standard deduction has been increased massively. Here are the new brackets for individuals:

    • 0-$9,525 of taxable annual income: 10%
    • $9,526-$38,700 of taxable annual income: 12%
    • $38,701-$82,500 of taxable annual income: 22%
    • $82,501-$157,500 of taxable annual income: 24%
    • $157,501-$200,000 of taxable annual income: 32%
    • $200,001-$500,000 of taxable annual income: 35%
    • $500,001 or higher taxable income: 37%

A standard deduction is how much you can write off your income when filing your taxes. The exact amount depends on your filing status, marital status, and other factors, such as disability. There is an understanding that this is done to offset how much of your year’s income is necessary for survival, and thus should not be taxed. Last year, a single individual could file $6,350 as a standard deduction. The biggest change with Trump’s new tax bill is that this standard deduction has nearly doubled, to $12,000 per single filer.

However, 2018 also sees the removal of personal exemptions. Like standard deductions, a personal exemption is a dollar value that you can shave off your income taxes. However, unlike standard deductions, personal exemptions do not vary based on marital status, disability/age, etc.

While there was a personal exemption of $4,050 in 2017, this year will see a personal exemption of nil. For joint filers/married taxpayers filing together, the numbers are 0 for a personal exemption and $24,000 for the new standard deduction. This is, for most people, a net-win in terms of money saved on taxes.

However, there is more to this tax change than the new deductions and adjusted brackets, including changes to the estate tax, deductions for pass-through businesses (small businesses that file as individuals), and the elimination of the alternative minimum tax.

In short, this bill has the potential to transform the American economy to provide for more opportunity by loosening the stranglehold on American business. This means bringing profits back into the US, pulling out from tax havens, and providing greater benefits and bonuses to employees while giving shareholders and executives the means to further grow their companies.

It Will Uplift the Economy

The new tax cuts are projected to have an overall positive effect on the US economy, with a total growth in the country’s GDP for several years to come.

The idea is that cuts will improve business operating costs and incentivize companies to strive for growth, creating more jobs and enriching old ones. Not only this, but it would bring more manufacturing back into the US from foreign soil, further improving and enriching the local economy, pushing for greater spending through greater salaries and bonuses.

Businesses stand to benefit from the new changes more than anyone else. The federal corporate tax has been slashed from 35% to an astounding 21%, so businesses can expect a boost in profits. The assumption here is that these profits will go partially to executives and shareholders, and largely to the working class. However, pessimists explain that most of their outlooks depend on the reverse on happening.

Only time will tell which way the wind will truly blow, but major corporations – including AT&T, Comcast, and Boeing – have already announced increased wages and bonuses to employees on several levels due to the announced tax cuts and changes.

It May Affect the Real Estate Market

Changes in pass through businesses – in which owners file their business’ profits as personal income – will allow real estate investors and developers to build greater wealth through better tax cuts, thus improving their ability to invest in the real estate business and build more affordable housing.

More houses mean lower prices, and as many suspect that we continue to reach a dangerous bubble, any attempts made to lower housing costs are a welcome change.

It Helps People Without Health Insurance

One of the biggest changes included in the new tax bill is an end to taxation for those without access to healthcare. Not every American can currently afford healthcare, and the result is that many must not only go without it but pay a penalty for doing so. The new bill has been designed to make it so the choice to avoid healthcare does not cost anything.

In Closing

The bill is far from perfect. The removal of certain deductions means some families, especially single filers with children and low incomes, will struggle with their new taxes. On the other hand, it uplifts middle-class households, and the hope is that the new tax breaks for both small businesses and major corporations will result in massive economic stimulus, an end to businesses abusing foreign tax havens, and greater employee benefits afforded by larger profits. On average, Americans will receive a $1,610 tax cut.

Whether the bill’s promises and potential will prove to be true is only a matter that time can tell – but there is a lot to be optimistic about, and with the changes in the estate tax and the effect the new bill will have on the housing market, the GOP’s new bill could greatly affect inheritance plans. It is important to review your current estate plan and make any amendments and necessary modifications regarding the new laws.

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