Can New Tax Reform Can Change Again
thirteen Min Read | Mar 24, 2022
Just when you started getting comfortable with your annual chore of taxation filing, the 2022 revenue enhancement reform bill hitting the scene—and everything changed. From revenue enhancement rates to deductions, a whole bunch of tax changes forced millions of Americans to rethink how they did their taxes.
But here'southward the thing: Even though the tax reform bill brought some big changes, information technology also made a lot of things simpler.
Stick with us, and we'll break down the details so you sympathize what's changed and how those changes bear upon you lot!
How the Tax Reform Bill Impacted Your Taxes
Even though the tax reform bill—formally known as the "Tax Cuts and Jobs Human activity"—was introduced style dorsum in 2017, it didn't become into event until you filed your 2022 taxes that were due in April 2019. Nearly all of the changes fabricated in the bill will expire after 2025, while most of the business organisation provisions will stay in identify.
Almost everyone felt the difference, and y'all probably even noticed that less coin was being withheld from your paychecks in 2022 as a result of the changes.
Hither'southward a rundown of all the changes that came with the tax reform nib.
New Income Brackets and Marginal Tax Rates
First, one of the virtually talked almost changes in the 2022 revenue enhancement reform neb was the update to income tax brackets and marginal tax rates.
Taxes shouldn't be this complicated. Let us help.
And so, what are marginal tax rates? Those are the percentages of your income that y'all pay in taxes. What this means for y'all: Your income is non taxed at one charge per unit simply at several different rates, depending on how much you make.
How practice you know your tax rates? Enter tax brackets. Tax brackets are income ranges. It's that unproblematic.
Each tax bracket corresponds to a tax charge per unit. For example, if your income is $120,000, your tax rate isn't a apartment 24%. Instead, part of your income is taxed at 10%, part at 12%, part at 22% and function at 24%. (You tin can cheque out the chart below to see all the tax brackets with their corresponding revenue enhancement rates.)
Here's the affair about income brackets and tax rates: It's fairly mutual for revenue enhancement brackets to change to account for inflation each year. But the marginal taxation rates only change when a new taxation law is passed—which doesn't happen oft. That's why people were peculiarly interested in this part of the tax reform pecker.
The tax reform billlowered marginal tax rates, which was good news for many Americans because it meant they could pocket more money from their paychecks!
To help you encounter those changes, take a wait at the 2022 and 2022 marginal tax rate tables.
| 2017 Marginal Taxation Rates | Single 2022 Tax Bracket | Married Filing Jointly 2022 Tax Bracket | Head of Household 2022 Taxation Subclass | Married Filing Separately 2022 Tax Subclass |
|---|---|---|---|---|
| 10% | $0 - $ix,325 | $0 - $18,650 | $0 - $thirteen,350 | $0 - $nine,325 |
| xv% | $9,326 - $37,950 | $eighteen,651 - $75,900 | $13,351 - $fifty,800 | $ix,326 - $37,950 |
| 25% | $37,951 - $91,900 | $75,901 - $153,100 | $50,801 - $131,200 | $37,951 - $76,550 |
| 28% | $91,901 - $191,650 | $153,101 - $233,350 | $131,201 - $212,500 | $76,551 - $116,675 |
| 33% | $191,651 - $416,700 | $233,351 - $416,700 | $212,501 - $416,700 | $116,676 - $208,350 |
| 35% | $416,701 - $418,400 | $416,701 - $470,700 | $416,701 - $444,550 | $208,351 - $235,350 |
| 39.6% | Over $418,400 | Over $470,700 | Over $444,550 | Over $235,350 |
Chart: 2022 Marginal Income Tax Rates and Brackets1
How do all these numbers stack upward to the changes fabricated for the 2022 tax year after the tax reform nib went into effect? Allow'due south compare.
| 2018 Marginal Tax Rates | Single 2022 Tax Subclass | Married Filing Jointly 2022 Tax Subclass | Head of Household 2022 Tax Bracket | Married Filing Separately 2022 Tax Subclass |
|---|---|---|---|---|
| 10% | $0 - $ix,525 | $0 - $19,050 | $0 - $13,600 | $0 - $9,525 |
| 12% | $ix,526 - $38,700 | $19,051 - $77,400 | $thirteen,601 - $51,800 | $9,526 - $38,700 |
| 22% | $38,701 - $82,500 | $77,401 - $165,000 | $51,801 - $82,500 | $38,701 - $82,500 |
| 24% | $82,501 - $157,500 | $165,001 - $315,000 | $82,501 - $157,500 | $82,501 - $157,500 |
| 32% | $157,500 - $200,000 | $315,000 - $400,000 | $157,500 - $200,000 | $157,501 - $200,000 |
| 35% | $200,001 - $500,000 | $400,001 - $600,000 | $200,001 - $500,000 | $200,001 - $300,000 |
| 37% | Over $500,000 | Over $600,000 | Over $500,000 | Over $300,000 |
Chart: 2022 Marginal Income Tax Rates and Bracketsii
Here's a applied case of how these changes played out.
In 2017, a single individual with a taxable income of $100,000 paid $20,981.35 in taxes: ($9,325 x 0.10) + ($28,624 x 0.15) + ($53,949 ten 0.25) + ($8,100 x 0.28).
Now let'due south compare that to the 2022 marginal revenue enhancement rates. For 2018, a single individual with a taxable income of $100,000 paid$18,288.92 in taxes: ($nine,525 x 0.10) + ($29,174 x 0.12) + ($43,799 x 0.22) + ($17,499 ten 0.24).
That's a savings of $2,692—nice! And the savings aren't simply for singles. Not simply did married folks enjoy a lower taxation rate for income earned in 2018, but the shift in taxation brackets besides removed what used to be an unintentional tax penalty for married filers.
Under the 2022 tax constabulary, some married filers were pushed into a college income subclass when they combined their income with their spouse'southward. Now the new income brackets are merely doubled for joint filers, which means that unintentional marriage penalty is gone.
Departure in the Standard Deduction
What else inverse? Another of import difference in the 2022 tax reform bill is thatthe standard deduction about doubled. That's great news!
The standard deduction isan automatic reduction in what yous owe in taxes. When you pay taxes, you have the option of taking the standard deduction or itemizing your deductions. If you itemize, y'all calculate your deductions one past one. Itemizing is more of a hassle, simply it'due south worth it if your itemized deductions exceed the amount of the standard deduction.
Here'due south a quick look at how the standard deduction inverse from 2022 to 2018:
| Filing Condition | 2017 Standard Deduction | 2018 Standard Deduction |
|---|---|---|
| Single | $6,350 | $12,000 |
| Married Filing Jointly | $12,700 | $24,000 |
| Married Filing Separately | $6,350 | $12,000 |
| Head of Household | $9,350 | $18,000 |
Chart: Changes to the Standard Deduction3
At outset glance, the increment in the standard deduction fabricated itemizing expect fifty-fifty less worthwhile. But there's another piece to the puzzle.
The 2022 tax reform pecker got rid of the personal exemption. That's the amount a taxpayer used to exist able to deduct from their taxable income for themselves and whatever dependents claimed on their tax return. Here'south how those 2 changes played out:
In 2017, the personal exemption was $iv,050 per dependent (like a kid or relative) and per taxfiler.4 And then, back then, a married couple filing jointly with no dependents who made $100,000 received a $12,700 standard deduction and $8,100 in personal exemptions, leaving them with a taxable income of$79,200 ($100,000 – $20,800 = $79,200).
In 2018, that same couple received a $24,000 standard deduction and no personal exemptions, leaving them with a taxable income of$76,000.
Essentially, the tax reform bill simplified this portion of the income tax process. In many cases, the increase in the standard deduction makes upwards for the elimination of personal exemptions, leaving some Americans with more than money in their pockets.
Keep in mind that every state of affairs is different as far as whether you should take the standard deduction or whether you should itemize. Talk to a taxation pro to know what'due south best for you.
Difference in Child Revenue enhancement Credit
The kids are finally paying off. In 2017, if parents made less than $110,000 jointly or $75,000 individually, they received a $1,000 child tax credit for qualified children under the age of 17.5 The 2018 taxation reform beak increased that credit to $ii,000per qualified child and raised the income limits for the credit to $400,000 jointly and $200,000 individually.6 This ways a lot more people will exist able to receive taxation credits for Junior. Woo-hoo!
More Changes for Taxpayers With Kids
If you have children, you lot may have a 529 college savings plan in identify. Money yous put in the account grows revenue enhancement-free, but up until 2018, it could only be used for qualifying higher expenses. The new tax reform bill changed that.
Now, if y'all have a 529 savings plan for your kid, you tin employ information technology for education other than college. For example, if you have children in private school or if you pay for tutoring while they're in kindergarten through twelfth grade, you can use money from your 529 for these expenses tax-free.seven
While information technology may seem like a do good to use a 529 plan prior to higher, you should piece of work with a qualified investing professional to brand sure—especially if you want to use the 529 plan sooner than you originally intended. Withdrawing besides much money before Junior goes to college can cancel out the power of compound growth.
Differences for Homeowners
What about mortgage deductions? In 2017, if you itemized your deductions, the IRS allowed you to deduct the involvement you paid on your primary residence and/or second home, as long as your original mortgage principal wasn't more$1 million.
In 2018, the maximum mortgage chief in the tax reform bill was lowered to$750,000. But for taxpayers who had existing mortgages in between $750,000 and $i million, they were grandfathered into the old deduction.8
Before the tax reform bill, you were too allowed to deduct interest paid on home equity debt, up to $100,000. The tax reform bill removed that deduction starting in 2018.ix So, aye—borrowing against your house got a whole lot dumber!
Departure in the Table salt Deduction
The Common salt deduction is some other deduction that was debated earlier the tax reform nib was voted in. No, we're non talking nigh tabular array salt. Salt stands for "state and local taxes," and this deduction addresses whether or non you can deduct state income taxes and/or sales taxes if you decide to itemize your deductions.
In the past, at that place was no limit on the deduction of country and local taxes, which was an advantage to those living in states with high taxes like California and New York. The new tax reform neb keeps the SALT deduction simply limits the total deductible amount to $10,000, including income, sales and holding taxes.10
That means that you may not be able to deduct all of your state and local taxes if you live in a country with high taxes. Just if these taxes were under $10,000 for you already, you won't even detect this change.
The Estate Tax Exemption
What'southward the estate taxation? Basically, the estate tax is a tax you lot pay on inherited money and property. Simple plenty, right? Before the tax reform neb, there was a twoscore% revenue enhancement rate on any inherited holding valued over $5.49 million. With the new taxation reform bill, in 2022 you lot could inherit a full of $11.xviii million before the estate was hit with the 40% taxation. For 2020, that number increased to $eleven.58 million.eleven
More Deductible Income for Charitable Donations
Good news for those who like to give like no ane else! In 2017, yous could deduct upward to half of your income in qualified charitable donations if y'all itemized your deductions. The new taxation reform pecker increased that limit to 60% of your income.12
Increased Medical Expenses Deduction—For a While
Another often used deduction is the medical expense deduction. Before the new tax reform pecker, you could deduct unreimbursed medical expenses above10% of your adjusted gross income (AGI), which is your full income minus other deductions you take already taken. So, if your AGI was $50,000 and you spent more than $5,000 (10% of your AGI) on out-of-pocket medical expenses, you could deduct the total corporeality beyond $v,000.
The new tax reform pecker temporarily reduced that hurdle toseven.5% of your AGI for the 2022 and 2022 revenue enhancement years—merely that threshold returned to 10% of your AGI for 2022 and beyond.13
No More than Health Care Penalization
The tax reform bill didn't repeal the Affordable Intendance Act, otherwise known as Obamacare, just itdid go rid of the penalization you lot owe if you don't get wellness insurance starting with the 2022 revenue enhancement yr.14
While getting rid of penalties is good news, don't utilise that equally an excuse not to get health insurance. Nosotros know—insurance is expensive. Merely non having it tin toll y'all way more than!
Other Tax Deductions That Disappeared
There were a few other deductions that didn't make information technology past the chopping block in the new tax reform bill, like:
-
Casualty and theft losses (except those attributable to a federally declared disaster)
-
Unreimbursed employee expenses
-
Revenue enhancement training expenses
-
Pension payments
-
Moving expenses
-
Employer-subsidized parking and transportation reimbursement
And if you lot were used to writing off miscellaneous piece of work expenses, like travel or meals with clients, those tax breaks also disappeared equally role of the revenue enhancement reform bill. That may seem like bad news, but there are plenty of other ways to salvage money on your small-business taxes.
If you have a small business or a side hustle, a revenue enhancement pro can help you take advantage of all the deductions y'all qualify for.
What Does Dave Accept to Say About the New Tax Reform Bill?
Get Your Taxes Done Right
While the tax reform bill simplified some parts of the revenue enhancement code, it's all still pretty complicated. Can nosotros get anamen? But here'south the thing:No matter how you file, you should experience confident about your taxes!
Some of the revenue enhancement changes—like the increased standard deduction—may make it easier for you to file on your own with elementary taxation software. That's where Ramsey SmartTax comes in! Our new taxation filing software makes it easy to file your taxes in just minutes. And don't worry—there are no subconscious fees or charges that'll jack upwards the price as you lot go along. What you lot see is what you become. Learn more most Ramsey SmartTax today!
Or y'all may feel so stressed that you know yous're going to lose sleep if you attempt to do it on your own. If yous have a complicated tax situation or you lot own a small concern, working with a pro is likely the smartest move. In those scenarios, a missed deduction on your part could cost you a lot more than working with a tax pro.
And if you're looking for a trustworthy tax good in your area, we can help. We've vetted some of the best tax pros in the state and can recommend the best one about you. They have years of experience, and believe information technology or non, they honey this stuff. They can talk taxes all mean solar day long and accept a thorough understanding of the tax changes this year and how they affect y'all.
The sooner you connect with a pro, the sooner yous tin check taxes off your to-do list.
Observe a revenue enhancement skillful today!
Well-nigh the author
Ramsey Solutions
Source: https://www.ramseysolutions.com/taxes/tax-reform-bill
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