1. Tax rates
The Tax Cuts and Jobs Act (Act) reduces tax rates to seven lower tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The top rate was reduced from 39.6% to 37%. The rates applicable to net capital gains and qualified dividends were not changed. Kiddie tax rules were simplified by using rates that apply to trusts and estates instead of the parent’s top tax rates and unearned income of any siblings.
2. Exemptions:
The new law suspends the deduction for personal exemptions. You can no longer claim personal or dependency exemptions through 2025. Sad.
3. Standard Deduction:
But don’t be too said. The Act makes up for the loss of exemptions by doubling the standard deduction to $24,000 for joint filers, $18,000 for heads of household, and $12,000 for singles and married taxpayers filing separately. With the higher standard deduction, very few people will itemize. It virtually eliminates itemized deductions on a realistic level.
4. Child And Family Tax Credit:
The new Act doubles the credit for qualifying children from $1,000 to $2,000 and increases the refundable portion of the credit to $1,400. It introduces a new nonrefundable $500 credit for a taxpayer’s dependents who are not qualifying children.
The credit begins to phase out at an Adjusted Gross Income (AGI) over $200,000 ($400,000 for married couples). This rule is in effect through 2025.
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Victor Santos Sy graduated Cum Laude from UE with a BBA and from Indiana State University with an MBA. Vic worked with SyCip, Gorres, Velayo (SGV – Andersen Consulting) and Ernst & Young before establishing Sy Accountancy Corporation in Pasadena, California.
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He has 50 years of experience in defending taxpayers audited by the IRS, FTB, EDD, BOE and other governmental agencies. He is publishing a book on his expertise – “HOW TO AVOID OR SURVIVE IRS AUDITS.” Our readers may inquire about the book or email tax questions at [email protected].
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