Whenever I go to a cocktail party or some other gathering and when the person I am talking to finds out what I do most of the time their next question is: “So what is the market going to do? “, or some variation of that. And my standard answer “If I knew for sure, you and I could be very wealthy, very quickly” causes a chuckle and we move on to the weather.
But now, especially with April 15th being next week, the question is “What about this new tax law, how much am I getting back?”
I got that question just the other night as I was writing my bid number next to a silent auction item. I turned to her and said, “It depends.”
That is such a cop out answer but it depends on a lot of factors such as the household size, earnings, where you live, who you work for or if you work for yourself, etc.
This was the most sweeping change in our tax law since Calvin and Hobbes made their debut in our comic strips — my youngest son thinks that day should be a national holiday.
This is a topic for a series of blog posts because:
- There is a lot to say about it,
- We are discovering new wrinkles in it as we go, and
- My enchiladas are getting cold.
So, what’s up with this?
Income tax rates have been lowered across the board. I like lower tax taxes
The rates will expire in 2025 unless Congress agrees to extend them. If they form a special committee today I still doubt they will come to a consensus by then.
The biggest change, in my opinion, is the increase in the standard deduction. The deduction for singles is now $12,000, $18,000 for the head of household and $24,000 for married filing jointly. Taxpayers that are 65 or older will get an additional $1,600 if they’re single or $2,600 for married filing jointly.
Of course, to get that we had to give up the personal and dependent exemptions.
So, you are thinking, wow so folks with large families are going to lose in this deal? To that I say, wait for it…
There is now a larger tax credit for each dependent under 17 – two times the previous credit to be exact. The credit jumps to $2000 each from $1000 each.
Married couples with adjusted gross incomes (AGI) of up to $400,000 are eligible for these credits, which is up from $110,000 in 2017.
Keep in mind tax credits reduce your tax bill dollar for dollar so they are much more valuable than a deduction that just reduces your taxable income.
This is huge
Now, if you will excuse me my enchiladas are getting cold.
In the next post, we’ll discuss how the new tax laws affect property ownership.