7 ways the new tax bill could affect you
At Bank of Colorado, we’ve heard a lot of questions about the new tax policies enacted under the 2017 Tax Cuts and Jobs Act (TCJA). While there are many changes, most taxpayers won’t notice them all. So, to simplify things a bit we’ve grouped some of the changes most likely to impact regular folks into seven categories, including: take-home pay, saving for education, running a business, owning a home, paying for healthcare, having a family, and filing your taxes.
Read on to see how the TCJA might affect you.
Most workers will see an increase in take-home pay starting around February 2018. This will likely be the most noticeable change until it comes time to file your 2018 taxes next year.
Be sure to compare your most recent pay stub with a previous one to see if you are bringing home more money each month. If you are, this is an excellent opportunity to either increase savings contributions or to start regular automatic deposits to a savings account or retirement account. If you are currently paying down consumer debt or high interest credit cards, this extra money could also be used to help you get out of debt faster.
Saving for education
If you want to send your kids to private school, you may want to open a 529 account. These accounts allow parents to help pay for their children’s education by taking money out tax-free. Previously this money could only be used for college expenses. Under the TCJA, 529 accounts can pay for private elementary and secondary school expenses as well.
Running a business
People who run small businesses typically pay income taxes based on the normal rate for individuals. Starting this year, business owners can deduct 20% of qualified business income from a partnership, S corporation or sole proprietorship. This deduction begins to phase out at $157,500 for individuals and $315,000 for couples filing jointly.
Owning a home
You can still deduct mortgage interest if you itemize your taxes. But the limit has been reduced from mortgages of $1 million or less to mortgages of $750,000 or less. This only applies to those who took out a mortgage after the tax law went into effect in January 2018.
People are also limited in how much of their state and local taxes they can deduct. Taxpayers can deduct a maximum of $10,000 in total state and local income, sales and property taxes.
Previously, homeowners were able to deduct losses from natural disasters, fire, theft or vandalism, provided that the losses were over $100 and all losses exceeded 10% of adjusted gross income. Under the TCJA, this deduction only applies if the loss occurred during an event that was officially declared a disaster by the President.
Finally, moving costs are no longer deductible, with some exceptions for military families.
Paying for healthcare
Under the TCJA, individuals will no longer pay a penalty if they do not carry a qualifying health insurance plan. Additionally, taxpayers can deduct out-of-pocket medical expenses that exceed 7.5% of adjusted gross income.
Having a family
The child tax credit has increased from $1,000 to $2,000 per child. Up to $1,400 of that amount is available as a refundable credit – meaning individuals are eligible to receive that money even if they don’t owe any taxes. Children must be under 17 at the end of the year to qualify for the credit. Taxpayers can also reduce their tax bill by up to $500 for other dependents who are not children, such as an elderly parent.
Filing Your Taxes
Under the new tax law, the standard deduction nearly doubles – increasing from $6,350 to $12,000 for individuals. And going from $12,700 to $24,000 for couples filing jointly. This means that many people who previously itemized their deductions may find it more beneficial to take the standard deduction.
However, keep in mind that all of these individual tax cuts are set to expire in 2025 unless Congress extends them.
Looking for an easy way to make your tax cut count?
Consider setting up an automatic deposit into your Bank of Colorado savings account every two weeks, in the same amount as the extra income you bring home after taxes. It’s a great way to make sure you hold on to your tax savings and can use them in the future for something important.