The Tax Cuts and Jobs Act (“the Act”), signed into law in December 2017, is likely to affect most Californians in some way. Most of the law’s provisions are effective for tax year 2018, meaning they won’t impact the way you file your 2017 taxes between now and April 15.
Here are some of the Act’s changes:
The Federal estate tax exemption is now $11.2 million for single taxpayers and $22.4 million for married taxpayers filing joint returns. This means fewer peoples’ heirs will have to calculate and pay an estate tax. Learn more about structing your estate plan to carry out your wishes here.
Tax Bracket Changes
There are still seven tax brackets, but most people will now pay income taxes at a lower rate. Because this change is effective for 2018, workers should start seeing changes in their paychecks this month.
Capital Gains Taxes
If you are an investor, you might also see changes to the taxation of long-term capital gains, with three capital gains brackets of 0%, 15% and 20%.
The personal exemption has been eliminated under the Act, but the standard deduction has nearly doubled. Single taxpayers will have a $12,000 standard deduction and married taxpayers will enjoy a $24,000 standard deduction.
Deduction for Pass-Through Businesses
If some or all of your income comes from a “pass-through” entity like an LLC, partnership, S-Corporation or a sole proprietorship, the Act includes a 20% deduction before other deductions and taxes are calculated. This is phased out for higher-income professionals like lawyers, doctors, and consultants.
Popular Deductions Changed
The Act also includes changes to the mortgage interest deduction, charitable contribution deduction, and medical expense deduction. In addition, other deductions have been eliminated completely. However, because of the new higher standard deduction, it is estimated that fewer taxpayers will itemize deductions.
Expansion of the Child Tax Credit
If you have children under the age of 17 and have income under $200,000 (individuals) or $400,000 (married filing jointly), you may be able to take advantage of the higher child tax credit of $2,000.
These are just some of the Act’s many changes and we are not accountants, so please talk to your tax professional to learn more about how the Act’s provisions will impact your own taxes. If you’d like to discuss how to carefully prepare an estate plan that will ensure your health and financial wishes are known, contact us today!