Even under the best of circumstances, understanding your yearly tax filing can be a colossal challenge. Confusion surrounding taxes can have substantial financial ramifications for your family. Of the 1 million individual return audits that took place in 2016, more than 23,000 taxpayers disputed the $1.6 billion of additional tax suggested by auditors’ findings. Understanding exactly what you owe is extremely important for your economic well-being.
That in itself is going to prove difficult for Americans in the next year or two, considering that the Republican party has kept much of the new tax plan under wraps. More details continue to emerge about the tax plan by the day, but taxpayers will still undoubtedly have questions about how these changes will impact them in 2018 and 2019. We’re highlighting some main points to know.
Tax Brackets: Changing Income Ranges
While the House’s initial tax proposal included reducing the number of income brackets, the final version of the tax plan keeps the seven-bracket design. However, the income ranges within those brackets (and, in some cases, the percentage they’re taxed) will change. The most noticeable place this occurs is within the fourth, fifth, and sixth brackets. Under the new plan, single filers making $200,000 or more a year will be charged 35% to 37%, and the income ranges are switched around a bit. There is some good news for certain Americans here: it’s likely that if you’re a salaried employee and don’t receive a raise in 2018, you’ll probably owe a little less in federal taxable income. Keep in mind that these income bracket changes will apply to incomes earned throughout 2018 (for which you’ll pay taxes in April of 2019). None of the changes to Trump’s tax code will apply when you prepare your taxes this April (which pertains to your 2016 income).
Homeowners May Lose Big
Homeowners who live in costlier areas may be unhappy to learn that the new tax bill places limits on deductions that can be made for property taxes and state and local income taxes, capping out at a combined $10,000. Californians and New Yorkers, who live in areas where homes are expensive and property taxes are soaring, may find that they’ll have to pay more in April 2019 for their 2018 taxes.
To make matters worse, the new tax bill specifically prohibits prepaying 2018 state and local income taxes, so you won’t be able to pay those with the benefits of the current law. However, the bill doesn’t say you can’t pay your property taxes early. Many advisors have told their clients to pre-pay property taxes by the end of this year so they can take advantage of the savings. To do this, residents will have to check with their county to see whether doing so is allowed.
Deductions And Take-Home Pay Could Improve
According to a 2017 online survey conducted by NerdWallet and Harris Poll, 32% of Americans say they make enough to just make ends meet. There might be some good news for Americans living paycheck-to-paycheck, as the changes to tax withholding rates may give you a bit more take-home pay — and that could take effect earlier than you might think. For some, take-home pay could increase as soon as February of 2018. In addition, if you choose to take standard deductions instead of itemizing them, you could benefit from those rates that have essentially doubled for single and joint tax payers. However, if you itemize, you won’t be able to claim alimony payments or even money spent out-of-pocket for work purposes. In essence, the effect of the tax bill in this area might depend more on what you do than how much you’re actually paid for it.
There are also changes being made to deductions on vacation home loans, mortgage interest deduction limits, and more. Be sure to seek out tax help from a professional if you need further clarification on how the new tax plan will impact you and your family.
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I’m smiling, personally. We never itemized, so doubling the standard deduction is great for us.
Also, wife turns 65 in 2018, so we’ll both get the personal exemption (retained for 65+ or blind), another $2600 bucks. That combined $26,600 will knock a real dent in her teacher’s pension, and the rest of our income is mostly SS, so I expect our federal bill to go WAY down.
But there will be a lot of folks in high property/income tax States with big mortgages that will crying the blues, for sure.
andy, it’s uncanny how much alike our financial situations are.
Looking forward to your “under 40K income” article.
RD,
If Len ever gets around to letting me know the parameters for it, you’ll get to read it !
I’m afraid I’m to blame for the delay, andy.
Len has been preoccupied formatting and programming “GRANDFATHER SAYS” articles for publication over the next few months.
Don’t see how he gets as much done as he does, holding down a regular job and running this blog.
Tip: Make up your own parameters.
Write up your situation the way you see it and email it to Len.
Nailed it, Dave. That’s a big part of it!
I’ll be hitting you up soon, Andy. Promise!! I just need a little more time to get my act together.
No problem….not complaining. I enjoy your blog.
RD…part of the problem is my regular email doesn’t want to believe Len’s email is real, and bounces back any attempt to email him….stupid computers. I finally did manage to get thru using a Yahoo email I had from some years back, but that thing is clunky to use.
Amen on clunky computers!
“Grandfather” wishes Len wasn’t all the way across the country on the other coast.
Homing pigeons could do better.
What the government giveth with one hand it takeths away with another.
More like what the government giveth in one hand it taketh twice away with the other!
Yeah, the govt taketh first…..then supports a bloated bunch of govt weenies, a whole lot of whom do nothing, then seen a faction back based on what they determine are the needs for money that wasn’t theirs to start with, and THEN act like you ought to be grateful.
Dept of Agriculture Joke:
Guy is walking down the hall in the DoAg one day, and passes an office where a supervisor, two field inspectors and 3 clerks are bawling their eyes out.
“Hey…what’s wrong here ?”
One of them looks up and moans “OUR FARMER DIED….”
Said to be a true story:
David (Davy) Crockett was back in his Tennessee home district running for re-election. (1830’s). Meets a farmer along the road and starts into a spiel about the good Congress has done during his term.
“There was this house that burned within sight of the capitol, and we in Congress passed a bill to give some money to help the guy re-build”
Farmer says “Well….that’s all well and good the fellow got helped…but IT WASN’T YOURS TO GIVE”
Crockett lost (probably not due to just this), and was later asked what he was going to do “Ya’ll can go to hades, I’m going to Texas !”
LOL! That farmer joke was terrific, Andy! Good stuff.