Avoid Paying Unnecessary Taxes!
Forecasting regulatory changes and complying with current U.S. tax reform laws gets increasingly complex every year. Join Tax Bridge Advisors on Tuesday, March 24th for a Tax Symposium, at the DEM Presentation Hall in DTLA, to help educate and navigate you through this uncertain environment of taxes. I hope you will join me for this exclusive event.
- Jose Villalpando, Chief Executive Officer
TaxBridge Advisors, Corp.
“Avoid Paying Unnecessary Taxes!”
TOPICS TO BE DISCUSSED:
Tax Brackets: Still Seven, But With Different Rates
One of the headline changes made by the Tax Cuts and Jobs Act was a general lowering of U.S. tax rates. While the number of tax brackets remained at seven, the rates were generally lowered, with the exception of the minimum tax rate staying at 10% for the poorest Americans.
In addition to lower tax rates, the income thresholds were increased, particularly at the higher tax brackets. In other words, the highest tax brackets now apply to fewer (higher-earning) Americans than it did previously. For example, before the passage of the Tax Cuts and Jobs Act, the top tax rate was 39.6% and applied to married couples filing jointly who earned more than $480,050. With tax reform, that top rate was lowered to 37% and only applies to married couples making more than $600,000 in taxable income, much more income than before.
Annual Adjustments Will Be Different
Before the 2018 tax year, inflation adjustments to things like the tax brackets, standard deduction, and other tax provisions had been based on the CPI-U (consumer price index for all urban consumers). This index tracks a basket of goods and services that affects the typical U.S. household, so it made sense that it was used to gradually increase tax-related figures over time.
The new tax law uses a metric known as the Chained CPI instead, which makes the assumption that if a particular good or service becomes too expensive, consumers will begin buying a cheaper alternative. Without getting too deep into a discussion about the Chained CPI, the effect is that the index grows at a slightly slower rate over time than other forms of the CPI.
Higher Standard Deduction
The Tax Cuts and Jobs Act nearly doubled the standard deduction from previous levels. Taxpayers can choose between using the standard deduction or itemized deductions. Itemizing deductions means adding up all of the individual tax deductions to which you're entitled and then subtracting them from your adjusted gross income (AGI). (Note: Adjusted gross income is your total income minus a few adjustments. Common adjustments to income include traditional IRA contributions and student loan interest, just to name a few.)
The Personal Exemption is Gone
While the standard deduction has increased, the valuable personal exemption has gone away. The reasoning for this is that, in addition to a tax cut, lawmakers were also attempting to simplify the tax code. So instead of giving taxpayers a standard deduction and a number of exemptions, these two things were essentially combined into a higher standard deduction.
The Child Tax Credit has doubled (Maybe)
The Child Tax Credit has Doubled
Although families with several children may feel the sting from the repeal of the personal exemption, there's some good news. Not only has the Child Tax Credit been increased, but more of the credit now is refundable and the income limitations are far less restrictive.
Different types of itemized deductions such as medical expenses, charitable. Changes for itemized such as: SALT Starting with the 2018 tax year, however, the SALT deduction is limited to a total of $10,000. This may sound like a lot, but many Americans -- especially those in high-tax states like New York, New Jersey, and California -- have been deducting several times this amount. For example, the property tax on my parents' modest home in New Jersey almost reaches the $10,000 cap all by itself.
Now, millions of Americans cannot deduct their state and local taxes, and on top of that, the higher standard deduction means that many families who pay high amounts of state and local taxes may not be able to take advantage of the SALT deduction at all.
No More Obamacare Penalties, Starting in 2019
While the Republican administration and Congress have thus far been unsuccessful in repealing the Affordable Care Act, the Tax Cuts and Jobs Act did eliminate the individual mandate -- aka the "Obamacare penalty." This is the penalty you pay for not having health insurance. But there is Penalty in the state of California starting in 2020: The State of California is working to reduce the number of uninsured individuals and families with the adoption of a new state individual health care mandate.
Contribution limits for 2019-2020 and how it could affect taxes.
Capital Gains Tax
Capital gains are the profits from the sale of an asset — shares of stock, a piece of land, a business — and generally are considered taxable income. How much these gains are taxes depends a lot on how long you held the asset before selling.
In 2019 and 2020 the capital gains tax rates are either 0%, 15% or 20% for most assets held for more than a year. Capital gains tax rates on most assets held for less than a year correspond to ordinary income tax brackets (10%, 12%, 22%, 24%, 32%, 35% or 37%).