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 tax rates, increasing the standard deduction, and eliminating certain deductions. As a result, many taxpayers are wondering how the new tax code will affect them. Here’s what you need to know about the new tax code.
Tax Rates: The new tax code reduces the number of tax brackets from seven to four. The new tax brackets are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The top rate of 37% applies to taxable income over $500,000 for single filers and $600,000 for married couples filing jointly.
Standard Deduction: The standard deduction has nearly doubled under the new tax code. Single filers can now deduct $12,000, while married couples filing jointly can deduct $24,000. This means that more taxpayers will be able to take the standard deduction instead of itemizing their deductions.
Itemized Deductions: The new tax code eliminates or limits several itemized deductions. These include deductions for state and local taxes, mortgage interest, and medical expenses. However, the new tax code does retain the deduction for charitable contributions.
Child Tax Credit: The new tax code increases the child tax credit from $1,000 to $2,000 per child. The credit is now available to more taxpayers, as the income phase-out has been increased from $110,000 to $400,000 for married couples filing jointly.
Alternative Minimum Tax: The new tax code increases the exemption for the alternative minimum tax (AMT) from $84,500 to $109,400 for married couples filing jointly. This means that fewer taxpayers will be subject to the AMT.
These are just a few of the changes that have been made to the tax code. It’s important to understand how the new tax code will affect you so that you can take advantage of any tax savings opportunities. Be sure to consult with a tax professional to ensure that you’re taking full advantage of the new tax code.