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Are You Familiar with the New Tax Law?
On Wednesday, December 20th, 2017, Congress passed a comprehensive tax reform bill (otherwise known as “H.R.1”). The Act will have a significant impact on the taxation of corporations and individuals, and we encourage you to work with a us to help you understand how these changes specifically impact your financial picture.
Some of the key changes:
There are still seven tax brackets for individuals, but the rates have changed. Americans will continue to be placed in one of seven tax brackets based on their income. But the rates for some of these brackets have been lowered. The new rates are: 10%, 12%, 22%, 24%, 32%, 35% and 37%.
The standard deduction has essentially been doubled. For single filers, the standard deduction has increased from $6,350 to $12,000; for married couples filing jointly, it's increased from $12,700 to $24,000.
The personal exemption is gone. Previously, you could claim a $4,050 personal exemption for yourself, your spouse and each of your dependents, which lowered your taxable income. Not anymore. For some families, the elimination of the personal exemption will reduce or negate the tax relief they get from other parts of the reform package.
The child tax credit has been expanded. The child tax credit doubled - to $2,000 for children under 17. It's also now available, in full, to more people. The entire credit can be claimed by single parents who make up to $200,000, and married couples who make up to $400,000.
There's a new tax credit for non-child dependents, like elderly parents. Taxpayers may now claim a $500 temporary credit for non-child dependents. This can apply to a number of people adults support, such as children over age 17, elderly parents or adult children with a disability.
529 savings accounts can be used in many new ways. In the past, funds invested in 529 savings accounts wasn't taxed -- but it could only be used for college expenses. Now, up to $10,000 can be distributed annually to assist with the cost of sending a child to a public, private or religious elementary or secondary school.
Almost everyone is now exempt from the estate tax. Before tax reform, few estates were subject to the estate tax, which applies to the transfer of property after someone dies. Now, even less people will need to worry about it. The amount of money exempt from the tax -- previously set at $5.49 million for individuals, and at $10.98 million for married couples -- has been doubled.
The individual mandate on health insurance is gone. The elimination of the individual mandate, which penalizes people who do not have health care, goes into effect in 2019.
The corporate tax rate is lower. The corporate tax rate has been slashed from 35% to 21% starting next year. The alternative minimum tax for corporations has been thrown out altogether.