The Tax Cuts and Jobs Act of 2017 was the most sweeping tax reform in decades. It made significant changes to the tax code, including reducing the number of tax brackets, increasing the standard deduction, and eliminating certain deductions. As a result, many taxpayers will see a decrease in their tax liability. But how will the updated tax code impact you?
First, the new tax code reduces the number of tax brackets from seven to four. This means that the tax rate for each bracket is higher than it was before. For example, the top tax rate is now 37%, up from 39.6%. This means that if you are in the highest tax bracket, you will pay more in taxes.
Second, the standard deduction has been nearly doubled. This means that if you don’t itemize your deductions, you will be able to deduct more of your income from your taxable income. This could result in a lower tax bill for many taxpayers.
Third, the new tax code eliminates certain deductions. This includes the personal exemption, which allowed taxpayers to deduct a certain amount for each dependent. It also eliminates the state and local tax deduction, which allowed taxpayers to deduct state and local taxes from their federal taxes. This could result in a higher tax bill for some taxpayers.
Finally, the new tax code also changes the way that certain types of income are taxed. For example, the new tax code eliminates the deduction for alimony payments, which could result in a higher tax bill for those who receive alimony. It also changes the way that pass-through income is taxed, which could result in a lower tax bill for some taxpayers.
Overall, the new tax code could result in both higher and lower tax bills for different taxpayers. It’s important to understand how the new tax code will impact you so that you can plan accordingly. If you have any questions about how the new tax code will affect you, it’s best to consult a tax professional.