The Tax Cuts and Jobs Act (TJCA) was signed into law and took effect earlier this year. As many of you may know, the new tax law brings significant changes to our tax future. Since the implementation of the tax bill there have been numerous articles and news reports on how it can and will change the tax structure.
The most pressing question on everyone’s mind still appears to be, “Will I receive a more significant tax break or will my tax bill be larger in my future?” While these changes are different for each of us, there are similarities that we can find within the law for parents, seniors, caregivers and businesses. Even though most Americans will receive a tax cut, figuring out exactly how much your cut will be can be complicated.
Let us share five key considerations for how the new tax bill may be able to benefit you and your family.
1. The bill created a new family credit. The TCJA increases the amount of child tax credit (CTC) from $1,000 to $1,300 per child. Each parent and/or non-child dependent is now eligible for a $300 credit, which can be claimed for a senior family member you are caring for, or for a child who is still reliant on you over the age of 18. This is especially important for caregivers to know and discuss with their accountant or tax preparer.
2. The standard deduction has almost doubled. In an effort to decrease the number of people needing to itemize deductions, the TCJA increases the standard deduction to $12,000 for individuals and $24,000 for married couples. In addition, various tax incentives, such as deductions for mortgage interest, retirement, and higher education have remained in place. Further, under this new law, we now have five tax brackets as compared to the seven we had previously. Families now fall within one of the following: 0 percent, 12 percent, 25 percent, 35 percent, or 39.6 percent. Start your research early to determine if your family will fall into a lower tax bracket so you can anticipate what could happen in the future.
3. Preservation of the medical expense deduction. For the next two years, Americans with high medical expenses will be able to deduct them. Specifically, medical expenses that exceed 7.5 percent of a person’s annual gross income will be able to be deducted. This also includes out of pocket expenses and premiums that were not paid with pre-tax dollars.
4. Your 401k savings have remained the same. Despite a suggestion during session to cap the annual amount workers can put aside in their 401(k) accounts at $2,400, the TCJA has left the popular retirement savings plan untouched. Rest assured, workers can still put away as much as $18,500 per year in their 401k accounts without paying taxes on that money upfront.
5. Private K-12 education can now be paid through 529 plans. We all know how expensive saving for college can be, but what about K-12 education? 529 accounts, which previously allowed savings for college to increase without paying tax on investment gains, can now be used for up to $10,000 in K-12 private and religious school tuition, providing parents with more education options for their children.
These are just a few of the ways the Tax Cuts and Jobs Act (TJCA) can impact you and your loved ones. We know how challenging taxes and preplanning can be, especially with these new variables to consider. If this article raises more questions than it answers, or if you are ready to discuss your estate planning in light of this new law, do not wait to schedule a meeting with Attorney Alan Hougum.