Here's how tax reform will affect Americans | finder.com

Here’s how tax reform will affect Americans

Peter Terlato 20 December 2017

Most of the new legislation that has been introduced will take effect as soon as January 1, 2018.

The Senate and the House of Representatives have passed the government’s tax reform bill, the first major overhaul of the United States’ tax code in more than 30 years. But is this a Christmas gifts for all Americans?

The House had to re-vote on the legislation due to technical changes, however, the bill has officially passed.

It contains some of the most sweeping tax changes ever proposed. Among those is a $10,000 limit on state and local tax deductions. On the surface, this ceiling may sound like a problem affecting only the wealthy, but many middle-class Americans live in high-tax states, on the hook for property taxes that can soar above $30,000.

Taxpayers in California, Maine, Minnesota, New York, New Jersey, Vermont and Washington are burdened with the highest marginal individual income tax rates across the country, and will be most affected by this limit.

Taxpayers can opt to deduct from state and local income and property taxes or property and sales taxes.

The $10,000 deduction cap on state and local tax (SALT) deductions is only available to those who itemize.

Itemizing deductions means listing each specific deduction you qualify for. Americans often do this when the sum of all their deductions is greater than the standard amount. Around 30% of taxpayers do this each year.

Standard deductions will rise from $6,350 to $12,000 for singles and $12,700 to $24,000 for married filers.

CNBC reports the bill blocks taxpayers from prepaying 2018 expenses this year in order to secure a tax break.

An independent analysis determined that the average American would pay about $1,200 less to the IRS in 2019.

Generally speaking, the higher your income, the more likely you are to benefit from tax reform. Filers who earn between $250,000 to $750,000 are poised to reap the most savings after paying tax in 2018 ad beyond.

Filers claiming child tax credits for dependents will be big winners too. The tax credit Americans can claim for children living at home will double from $1,000 to $2,000. This means most lower-income households with multiple children and many middle-income households with dependent kids will pay notably less at tax time.

The corporate tax rate will be reduced significantly, from 35% to 21%, while small business owners will also pay a lower rate and be given the ability to claim deductions on 20% of their income earned from their business.

Mortgage interest deductions were also maintained, with a mortgage limit of $750,000, down from $1 million.

Most of the new legislation that has been introduced will take effect as soon as January 1, 2018.

Every taxpayer’s situation is unique, so you’ll have to do the math to determine actual savings or losses.

The latest survey data reveals American households are anticipating solid future income growth, as well as planning a substantial increase in spending, while remaining less concerned about debt repayments.

Discover how best to leverage these upcoming tax concessions to enhance your overall savings, invest in shares and build a portfolio or pay down outstanding debt using our comprehensive comparison guides.

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