It’s no secret that every tax bill always contains some loopholes or incentives that may either discourage people or encourage various types of behavior. The bill expected to come up for a final vote soon is truly no different, as it contains very little opportunities to either make or save some actual money.
Here are some of the most useful tips and tricks that will help you plan for some of the tax changes that are expected to come in the year 2018.
Rates Before and After
There will still be a total of seven income tax brackets; however, lawmakers have taken the opportunity to tweak the various rates and income levels for each one. Currently, the brackets are as follows:
On Friday afternoon, the bill that was released by the Tax Cuts and Jobs Act Conference Committee put the new rates as follows:
In terms of the income tax rate, this will dip for everyone but the lowest earners, and this benefit will be boosted thanks to the standard deduction being doubled. Currently, this means that if you’re single and filing, the standard deduction will be $6,350. With exemptions added in, the amount will total approximately $10,400. If you’re married without children and filing, the standard deduction will be $12,700, with the total being around $20,700 with exemptions added in. Those married with two children will see a deduction-plus-exemptions amount totaling $28,700. Additionally, the $1,000 tax credit per child for those who make under $400,000.
Those who are in lower-income families will be eligible for refunds of up to $1,400.
Under the new plan, the standard deduction will be temporarily increased to $12,000 for single individuals and $24,000 for married couples filing jointly. Additionally, taxpayers will only be permitted to deduct up to $10,000, including a combination of state and local taxes, which includes property taxes. The child tax credit also increases to $2,000, up to $1,400 of which can be delivered in the form of refundable credit, meaning that taxpayers can get money back even if they have no tax liability.
All of that will change in the year 2025, however, as the deductions and exemptions will then go back to the current law.
Here are three ways that you can benefit from the upcoming tax plan.
Donating now under the current tax system will likely get you a reward. Thanks to changes in the tax rules, there are some families that won’t be able to itemize deductions, meaning they won’t be able to get much of a tax benefit due to charitable giving. This means that giving now will allow you to write everything off as part of an itemized tax return.
Get Lucky with Your Inheritance Timing
The new bill also makes changes to the estate tax, which will influence when it would actually be best to inherit a big fortune. Under the current law, estates that are worth more than $5.5 million are subject to a tax of 40%, while smaller ones are able to be transferred without being subject to any tax. The new bill would double that limit starting next year, but then roll it right back in the year 2026.
Open a 529 Account if You Send Your Children to Private School
Under the current law, some tax-free accounts are designed to enable parents to save money so that they can pay for their child’s education. With the new law, however, parents would be able to use money from these accounts in order to pay for up to $10,000 per year in private education and home schooling. This change could bring about some positive effects for families who use it, such as shielding private school tuition from federal taxation and making private school tuition subject to all sorts of state tax breaks in many states. Applying a 529 account to home schooling expenses is something that will help families pay for different household expenses without having to worry about taxes being applied.