Tax season is in full swing, and chances are you’re feeling a little confused with all the changes you’re seeing on this year’s return forms. From small to large, including doubling the standard deduction and cutting corporate taxes, many laws changed when President Donald Trump signed the Tax Cuts and Jobs Act into law. The question is, what does it mean for you and your return?
How It Affects Families With Kids
The thing about tax changes is that you can never tell exactly how a group of people will be affected. Each family has its own unique tax situation that could cause it to lose or save money this year. However, overall, most families will have the chance to save money on their federal income taxes. This is because families with children can now take a standard deduction of $24,000. Additionally, many families will see higher child tax credits and a reduction in their tax brackets. As long as none of the other changes Trump made negatively affects their taxes, families will save an average of several thousand dollars each this year.
The Changing Tax Brackets
One of the most noticeable changes in TCJA is the changing tax brackets. There are still seven income tax brackets, but many of them are lower than they were in years past. For example, the highest tax bracket used to be 39.6 percent but is now 37 percent. Other tax brackets changed as well:
- The 33 percent bracket is now 32 percent
- The 28 percent bracket lowered to 24 percent
- The 25 percent bracket is now 22 percent
- The 15 percent bracket changed to 12 percent
However, not all brackets are lower now. If you were paying 10 percent of your income to taxes in the past, you still are. The 35 percent tax bracket stayed the same as well. If you are one of the people who moved to a lower percentage, do keep in mind that individual tax cuts are temporary and will only last through 2025.
Itemized Deductions Changed as Well
Trump’s TCJA is largely being touted as beneficial, but it is important to keep in mind that as tax rates lowered, so have some deductions you can take. Perhaps the most noticeable change is the lessening of the mortgage interest deduction. In the past, couples who took out new mortgages could deduct up to $1 million but now can only deduct up to $750,000 if they took the loan out after December 15, 2017.
There are also minor changes to the charitable contribution deduction. You can no longer deduct donations made if they result in seats at college athletic games, for example. However, you can deduct medical expenses that exceed more than 7.5 percent of your adjusted gross income, and you can do this even if you are under the age of 65. Student loan interest deduction remains the same.
While some of the changes in the Trump tax reform sound like they are highly beneficial, the truth is that large corporations are still the ones benefitting from the most deductions. The new flat rate means the bigger a business is, the more money it saves on its deductions. The more money you make, the more money you’ll save when you file this year.