Potential changes to federal taxation: What you need to know
By: Miles Welo
Sweeping changes to federal taxation: What you need to know
2018 will bring sweeping changes to the federal tax policy as the House and Senate passed a bill known as the Tax Cuts and Jobs Act.
We prepared this brief analysis of the bill to provide you with important information for your personal interests, business planning, and estate planning.
2017: Each individual is entitled to a lifetime exemption of $5.49 million (or nearly $11 million for married couples), which means a person can transfer up to $5.49 million dollars without being taxed, but are taxed at 40% on the amount transferred after $5.49 million.
New Law: the bill doubles the exemption levels to approximately $11.2 million for individuals and over $22 million for married couples. The bill keeps intact the tax of 40% for any transfer beyond the exemption limits.
Individual Tax Brackets
2017: There are currently seven individual tax brackets: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%.
New Law: There will remain seven individual tax brackets (with five of the brackets reduced) and they are as follows: 10%, 12%, 22%, 24% 32% 35%, and 37%.
2017: the corporate tax rate is currently 35%.
New Law: the bill lowers the corporate tax rate from 35% to 21%.
2017: the standard deduction is currently $6,350 for individual filers, and $12,700 for married couples filing jointly.
New Law: the standard deduction has nearly doubled, as it has increased to $12,000 for individual filers, and $24,000 for married couples filing jointly.
State and Local Tax (SALT) Deductions
2017: Taxpayers who itemize their taxes can deduct state and local property, real estate, and either state and local income or sales taxes.
New Law: the new bill allows taxpayers who itemize their deductions to deduct their state individual income, sales, and property taxes up to a limit of $10,000.
President Trump plans to sign the bill before the end of 2017. Stay tuned, the sweeping changes to our Federal tax system will likely have a significant impact on your personal, business, and estate planning objectives.