Tax reform is a hot topic in the United States, and with the upcoming year, it’s important to understand what changes are being made and how they will affect you. Tax reform is a broad term that encompasses a variety of changes to the tax code, including changes to income tax rates, deductions, credits, and other aspects of the tax system. This article will provide an overview of the key changes to the tax code that you need to know for the upcoming year.
The most significant change to the tax code for the upcoming year is the Tax Cuts and Jobs Act (TCJA). This act was signed into law in December 2017 and is the most comprehensive tax reform legislation since 1986. The TCJA made several changes to the tax code, including reducing the number of tax brackets, increasing the standard deduction, and eliminating certain deductions. It also made changes to the corporate tax rate, estate tax, and other aspects of the tax system.
The TCJA also made changes to the individual income tax rates. The new tax brackets are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The top rate of 37% applies to individuals with taxable income over $500,000 (or $600,000 for married couples filing jointly). The new tax brackets are generally lower than the previous ones, which means that most taxpayers will pay less in taxes for the upcoming year.
In addition to the changes to the individual income tax rates, the TCJA also made changes to the deductions and credits available to taxpayers. The standard deduction was nearly doubled, from $6,350 to $12,000 for individuals and from $12,700 to $24,000 for married couples filing jointly. The personal exemption was eliminated, and the child tax credit was increased from $1,000 to $2,000 per child. The TCJA also eliminated certain deductions, such as the deduction for state and local taxes.
The TCJA also made changes to the corporate tax rate. The corporate tax rate was reduced from 35% to 21%, which is the lowest rate since 1939. This change is expected to benefit businesses, as it will reduce their tax burden and allow them to reinvest more of their profits into their businesses.
Finally, the TCJA made changes to the estate tax. The estate tax is a tax on the transfer of wealth from one generation to the next. The TCJA doubled the estate tax exemption from $5.49 million to $11.18 million for individuals and from $10.98 million to $22.36 million for married couples filing jointly. This change is expected to benefit wealthy individuals and families, as it will reduce the amount of their estate that is subject to taxation.
Overall, the TCJA made several changes to the tax code that will affect taxpayers in the upcoming year. It is important to understand these changes and how they will affect you so that you can make the most of the new tax law. If you have any questions about the changes to the tax code, it is best to consult with a tax professional to ensure that you are taking full advantage of the new law.