Now that the Tax Cuts and Jobs Act was unveiled by House Republicans on November 2, we’re beginning to get the outline of what the tax bill could mean for everybody from corporations to average Americans.
At this early stage, we know that corporations will see a lower tax rate of 20% and lower taxes on both cash (12%) and profits (5%) stashed overseas in an effort to encourage repatriation.
But for the everyday person who is not a mega-corporation, let’s take a look at how the bill would impact your life if it were to be enacted as written.
5 things to know about the new tax bill
First off, let’s just clear the air on a topic that’s probably near and dear to the hearts of Clark.com readers…
After a lot of uncertainty, the new tax bill does not make any harmful changes to retirement account contribution limits.
You can still contribute $18,000 for 2017 and $18,500 for 2018 into your 401(k) — plus an additional $6,000 each year as a catch-up contribution if you’re 50 and older.
All the early talk of eviscerating those contribution limits down to as low as $2,400 had a lot of 401(k) savers up in arms. Thankfully, that idea never got written into the current text of the Tax Cuts and Jobs Act.
Of course, that’s not to say things couldn’t change down the line. But for now, you can breathe easy about your 401(k) contributions for the foreseeable future!
With that out of the way, let’s get to some other provisions of the bill:
1. The number of tax brackets will be reduced
Right now, we have seven tax brackets: 10%, 15%, 25%, 28%, 33%, 35% and 39.6%.
Under the new tax bill, that would be streamlined down to just four:
Curious as where your income would fit into the new brackets?
For single people, the brackets will be up to $45,000 (12%), up to $200,000 (25%), up to $500,000 (35%) and over $500,000 (39.6%).
If you’re married, these brackets will be up to $90,000 (12%), up to $260,000 (25%), up to $1 million (35%) and over $1 million (39.6%).
2. The standard deduction will go up
The standard deduction currently sits at $6,350 for individuals and $12,700 for married couples.
The new tax bill would raise the bar to $12,000 for individuals and $24,000 for married couples.
But if the bill get enacted as written, you’ll have to say goodbye to the personal exemptions you currently may take.
3. Higher child tax credits are expected
The current tax credit is $1,000 per child. That is projected to rise to $1,600 per child under the new bill.
In addition, the Tax Cuts and Jobs Act calls for a $300 credit per parent to help families shoulder the increasing expenses of kids.
4. New cap on the mortgage interest deduction
If you’re already in a home and plan to stay, the good news for you is the new tax bill would preserve your mortgage interest deduction.
But for newly purchased homes, that deduction would only be applied to home loans of $500,000 or less.
5. New way to deal with state and local tax deductions
The tax bill calls for you to be able to deduct state and local property taxes up to $10,000.
But the ax is set to fall on deductions for state and local income taxes.