The Trump Tax Reform has created some controversy and confusion in the tax community. Below is a brief list of some changes to the tax code:
- The Standard Deduction: Good news for everyone is that the standard deduction increased for everyone. $12,000 for single filers. $18,000 for heads of households. $24,000 for married couples filing jointly. Of course, you are still able to itemize your deduction if that itemized amount is greater than the standard deduction amount
- The Alternative Minimum Tax: There was talk that they would get rid of this pesky thing. What the AMT does is basically neuter those itemized deductions people have if they make too much money. The only good thing is that now the threshold is higher in order for the AMT to affect you. $109,400 for couples from the previous $86,200 and $70,300 for singles from the previous $55,400.
- State and Local Taxes (“SALT”): Originally, there was no cap on how much one could deduct in state income taxes and local property taxes. Unfortunately, it is now capped at $10,000. This may or may not affect you, but if it does, does it now encourage you to move or downsize and then move away during retirement?
- Capital Gains Taxes: Long-term capital gains on investments stay the same at their same brackets of 0%. 15%, and 20% but the thresholds are now different. 0% applies to taxable income of less than $77,200 for couples, 15% applies to taxable income over $77,200, and 20% applies to taxable income over $479,000.
- Retirement Accounts: Trump Tax Reform did not affect the taxability of contributions towards 401(k), 403(b), most 457 plans, TSPs, etc. Contributions are still tax deductible and those accounts will continue to grow tax-deferred. As a side note, the new contributions limit has increased by $500 for 2018 for a grand total of $18,500, unless you are over the age 50 and utilize the $6,000 catch-up amount. IRA’s also stay the same with the annual contribution limit staying at $5,500. If you are over 50, you can contribute an additional $1,000 as a catch-up.