Contrary to much of the politicized rhetoric we have all heard about this, the new tax laws do not simplify the tax code or make tax preparation easier for everyone. A few forms have been eliminated since you will no longer qualify for those adjustments and deductions. Yet it looks as though additional forms will be needed to calculate the rather complex subtractions and credits that are part of the new code. Ideas of fairness have been sacrificed to make a one size fits all standard deduction while eliminating the personal exemptions that relate to family size. Fortunately an increased Child Tax Credit can more than make up for that, for those with children under 17 years old.
Just where you will end up with the new tax laws is uncertain. The IRS is undergoing a change to withholding instructions that will not be out until at least February. Even with this, the instructions for Federal tax withholding form W-4 is already confusing and beyond normal human comprehension. With the increased standard deduction reflected on each job you have, it is highly likely that you will not have enough withholding if you and your spouse work two or more jobs combined. If you notice a big increase in your regular paycheck in 2018 it may be because your withholding is too low. If it is, and you do not get it fixed; you could owe big money by April of 2019 when your 2018 tax return is due. After we complete your tax return this year we will work out an analysis and recommendation for your 2018 withholding so that you can prevent a big disappointment in 2019.
2018 Federal Tax Law Changes (continued)
This is a brief, but incomplete summary of tax changes that most affect my tax clients. These are for your 2018 and future tax returns. Most of these changes are temporary with the tax laws reverting to the prior code in 2025. The biggest tax breaks of reduced Corporate Taxes and Inheritance Taxes are set to be permanent.
Reduced Individual Tax Rates. The new law does reduce the tax rates a few percentage rates along most of the tax steps (brackets). It does maintain the rather arbitrary jump by 10 percentage points across the median income range. Most, though not all taxpayers, should have a small, but noticeable, reduction in taxes. A small portion will pay more taxes.
- Single Taxable Income
- $ 0 to 9,525 × 10.0% minus $ 0.00 = Tax
- 9,526 to 38,700 × 12.0% minus 190.50 = Tax
- 38,701 to 82,500 × 22.0% minus 4,060.50 = Tax
- 82,501 to 157,500 × 24.0% minus 5,710.50 = Tax
- 157,501 to 200,000 × 32.0% minus 18,310.50 = Tax
- 200,001 to 500,000 × 35.0% minus 24,310.50 = Tax