William Penn Life, 2018 (53. évfolyam, 1-12. szám)

2018-03-01 / 3. szám

Moneywise with Bob Bisceglia, National Sales Director

Making sense of the new tax law

PRESIDENT TRUMP recently signed the tax reform bill into law, which makes some of the most sweeping changes to the U.S. tax laws in history. With that in mind, I thought I'd use this month's Moneywise to help our members better understand these changes and the potential impact they might have on their personal situation.

President Trump's original proposal called for reducing the number of tax brackets from seven to three, but the final bill kept the seven-bracket structure but with mostly lower tax rates. Here is an overview of the new brackets

that will take effect this

year:

2018 Tax Brackets for Single Filers

Tax is this amount plus

Of income

Income Bracket

this percentage

over

$0 - $9,525

$0 plus 10%

$0

$9,525 - $38,700

$952.50 plus 12%

$9,525

$38,700 - $82,500

$4,453.50 plus 22%

$38,700

$82,500 - $157,500

$14,089.50 plus 24%

$82,500

$157,500 - $200,000

$32,089.50 plus 32%

$157,500

$200,000 - $500,000

$45,689.50 plus 35%

$200,000

Above $500,000

$150,689.50 plus 37%

$500,000

2018 Tax Brackets for Married Joint Filers

Income Bracket

Taxis this amount plus this percentage

Of income over

$0-$19,050

$0 plus 10%

$0

$19,050-$77,400

$1,905 plus 12%

$19,050

$77,400 - $ 165,000

$8,907 plus 22%

$77,400

$165,000- $315,000

$28,179 plus 24%

$165,000

$315,000 - $400,000

$64,179 plus 32%

$315,000

$400,000 - $600,000

$91,379 plus 35%

$400,000

Above $600,000

$161,379 plus 37%

$600,000

2018 Tax Brackets for Heads of Households

Tax is this amount plus

Of income

Income Bracket

this percentage

over

$0 - $ 13,600

$0 plus 10%

$0

$13,600 -$51,800

$1,360 plus 12%

$13,600

$51,800 -$82,500

$5,944 plus 22%

$51,800

$82,500 -$157,500

$12,698 plus 24%

$82,500

$157,500 - $200,000

$30,698 plus 32%

$157,500

$200,000 - 500,000

$44,298 plus 35%

$200,000

Above $500,000

$149,298 plus 37%

$500,000

One thing to notice from the new brackets, is that the so-called "marriage penalty" is (mostly) gone. This occurred when a married couple's combined income catapulted them into a higher bracket than the single bracket for their individual income and resulted in a higher tax bill than if they were single. This is the reason so many married couples found themselves owing the tax man at year end-especially if they are newly married. The new brackets effectively "smooths out" the tax on the married couple's combined income and, in most cases, will result in a lower overall tax bill.

Standard deduction & personal exemption changes

This portion of the tax law change is being sold as a tax cut, but it's more of a tax simplification than an actual tax cut. While the standard deduction has roughly doubled for all filers, the valuable "personal exemption" has been eliminated.

For example, under the old tax law, a single filer would have been entitled to a $6,500 standard deduction as well as a $4,150 personal exemption, for a total of $10,650 in income exclusions. Under the new law, a single filer will get a standard deduction of $12,000 and no personal exemption. Is the new number better? Yes, but it's not really "doubled" as some say.

Let's look at example of a married couple with two children. Under the old law, they would get a $13,000 standard deduction and four personal exemptions of $4,150 each, for a total of $29,600 in total income exclusions. Under the new law, they receive the new standard deduction of $24,000, or $5,600 less in exclusions under the new tax law. The hope is that this difference will be made up for with the increase in child and dependent tax credits under the new law (which I'll explain later).

With that in mind, here is a comparison of the standard deductions of the new and old tax laws:

Changes to Standard Deducations

Tax Filing Status

Standard Deduction Under Old Law

Standard Deduction Under New Law

Single

$6,500

$12,000

Married Filing Jointly

$ 13,000

$24,000

Head of Household

$9,350

$18,000

Capital gains tax changes

The general structure of the capital gains tax, which applies to profits from things like stock sales and sales of other assets, isn't changing.

First, short-term capital gains (for assets held less than one year) are still taxed as ordinary income. Since the overall brackets have changed, there's a good chance that you'll pay less overall under the new law than the old for

4 ° March 2018 0 WILLIAM PENN LIFE