With his larger-than-life personality and disregard for the status quo, it is impossible to deny that Donald Trump is one of the most divisive political figures throughout the history of our country. Like him or not, as president he has implemented a number of policies that are likely to have a profound effect on the people of America as a whole. Here at Accounting Solutions Ltd. we strive to keep our clients and readers up to date with the most relevant and important news that is likely to affect how they manage their finances, and, with that being said, we find it to be of particular importance to share with our clients information regarding how Trump’s policies may affect their pockets (and the money that lies within).
Today, we are going to examine how the controversial Republican tax bill has influenced tax brackets across the nation, and how this may affect you next tax season. The bill itself was first signed near the end of December last year, and served as the first major piece of legislation that the president established since being in office. The bill itself essentially overhauls tax codes for businesses and individuals alike, and also contains various stipulations meant to boost the economy, including opening parts of Alaska to oil drilling and re-writing various components of the Affordable Care Act.
This tax bill, which came into full effect and applies to any income earned from January 1st, 2018 onwards, will not influence taxes being done for the 2018 tax season. This is due to the fact that the taxes under scrutiny were paid in 2017. One of the largest things that it will influence is the seven income tax brackets. Although they have not changed in number, the ranges of the brackets themselves have been adjusted, and influence single and joint filers differently. One thing that is important to note is that the standard deduction itself has increased. In 2017 this deduction rested at $6,350, and also permitted an additional exemption of $4,050. This year, the standard deduction now sits at $12,000 for single filers and $24,000 for joint filers. The personal exemption is no longer considered valid. A breakdown of the adjustments to the tax brackets is listed below:
- The lowest bracket (10%) now applies to those with incomes of $0.00-$9,525, an increase from the $0.00-$9,325 bracket of 2017.
- The 15% bracket has now been adjusted to 12%, and applies to those with an annual income of $9,526-$38,700.
- The 25% bracket has now been adjusted to 22%, and applies to those with an annual income of $38,701-$82,500.
- Another drop in the percentage of taxable income- the 28% bracket now rests at 24% and directly applies to those with and income range of $82,501-$157,500.
- The 33% bracket has changed to 32% of taxable income for those with annual earnings of $157,501-$200,000.
- The 35% bracket, for those with incomes of $200,001-$500,000 has only been adjusted in terms of the income amount itself, a sharp change from last season’s range of $416,701-$418,400.
- The final bracket, which applies to those with incomes of over $500,001, has decreased from 39.6% to 37%.
The brackets that apply to married taxpayers who file jointly have increased or decreased in regards to the percentages being taxed in the same manner as single filers. Here, some of the greatest changes have occurred in the brackets for those with higher incomes, as joint filers with cumulative incomes of $400,001-$600,000 face taxation of 35%. This will certainly affect those who had previously fallen into the 33% bracket with incomes of $416,701-$470,700.
This set of economic reforms is sure to raise many questions, and we here at Accounting Solutions Ltd are more than happy to answer. For more information regarding how these tax brackets may affect you in next year’s tax season, or if you wish to re-evaluate your own finances in lieu of reading this article, then don’t hesitate to give us a call!
** Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, we would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.**