How Will The New Tax Law Affect You?
While you’re getting your taxes filed for this year, it wouldn’t hurt to look ahead to 2019 and how the new tax law will affect your finances.
Have you done your taxes yet? No? Well, you should, um, get on that. The sooner you file your taxes, the sooner you’ll get your refund!
In the meantime, it’s never too early to start thinking about next year’s taxes. Especially because there are some pretty big changes in the tax code that you’ll have to take into account when you’re filing this time next year.
We kept you posted during the tax bill negotiations, but what’s the score now that it’s all shaken out?
We talked to some experts to bring you the info you need about this new tax landscape.
Who wins, who loses?
This always seems to be the way that coverage of the tax law is framed. In terms of “winners and losers.” And it makes sense. In a world without unlimited resources, a change in how we allocate those resources is going to result in some people doing better and other people doing worse.
As far as who does better and who does worse under this law, it seems pretty clear overall:
“Unfortunately, the benefits of these tax cuts are not distributed evenly,” Mario Costanz, CEO of Happy Tax Service (@happytaxservice), told us. “According to the Tax Policy Center, people making between $307,900 and $732,800 will see a 4.1 percent increase in their take-home pay after the new law goes into effect. However, people making between $48,600 and $86,100 would only see a 1.6 percent boost. So, wealthier households are benefiting more from the Trump tax cuts than low-income families—at least in the short term. Most of the tax cuts in the 2018 bill are set to expire by 2027, so—if the cuts are not renewed—most of us will see our taxes go back up.”
And while most people may see at least a temporary tax cut, that overall decrease in government revenue could mean the rolling back of services that many middle and lower class individuals and families rely on.
But that’s in the future, and we’re not in the business of predicting the future. (We used to be, but our magic eight ball rolled under the couch and we are very, very lazy.) Now that we’ve gotten a sense of the overall impact, let’s get to how this will affect you personally.
A couple of expanded deductions
We’re going to go out on a limb here and assume that you aren’t fabulously wealthy. Why? Because this is a blog about personal finance, not yacht upkeep or butler rodeos. And if you’re not in one of the upper-income brackets, then that odds are good that you don’t have a fancy accountant advising you how to minimize your tax burden.
But if you are indeed on the lower to middle end of the spectrum, then there is at least one aspect of this tax-code shake-up of the tax code could work in your favor. We’ll let financial planner Jason Newcomer explain:
“One impact that should help lower-income for families is the greater standard deduction. In 2017, a married couple filing a joint return could deduct $12,700 from their taxable income. In 2018, that number is $24,000. A married couple filing a joint return with children will likely be able to deduct less this year due to the loss of personal exemptions. However, the child tax credit has been expanded, and the net impact will likely be a reduced tax burden for this family.”
Of course, you might have noticed a “loss” in there. And the loss of the personal exemptions aren’t the only deductions that are going away.
And a lot of deductions are gone
For many families, the larger standard deduction might actually mean a smaller tax bill overall. But given how many deductions are on the way out, that’s far from a guarantee.
“Elimination of moving expenses. If you moved for work, those expenses used to be tax deductible. And they were especially advantageous because they were ‘above the line’ deductions that reduced your Adjusted Gross Income (AGI) and did not require you to itemize in order to take advantage of them. This deduction has been eliminated unless you are a member of the military.”
“Reduction in the state and local tax (SALT) deduction. Taxes paid to state and local governments (real estate, income tax, personal property tax, etc.) used to be completely tax deductible. This deduction has now been capped at $10,000 total. For some people this will not make much of a difference, but in states with high state income or high property taxes this will be especially painful.”
“Unreimbursed employee expenses. If you were an employee and had a large amount of unreimbursed business expenses, you could deduct those costs. This was especially helpful for people in sales positions or ones that required a lot of travel/mileage.”
You can check out Fraim’s post for a complete listing, but he also reached out to us with one example that could definitely affect you if you had a marriage that didn’t end so well:
“If you get divorced and have to pay alimony, there has always been one upside: You get to deduct those payments from your taxes. For now at least. Under the new tax code, this deduction has been eliminated for anyone getting divorced after December 31, 2018. Having to not only make these payments, but then to pay tax as though you have the money will make them even harder to swallow. Expect to see divorce settlements become even more contentious with some couples racing to wrap up their divorce before 2019.”
So, um, if you’re in a crumbling marriage … maybe pull the plug now instead of later? Wow, this got dark.
Why’d you have to go and make things so complicated?
Hopefully, this is a good start, but you may still want to do more research based on your own needs. Maybe even talk to a financial planner or accountant if you can afford one.
Despite the claims of “simplification,” this new tax law is anything but. As Fraim puts it in his blog: “Clocking in at approximately 1,100 pages long, and with more twists and turns than a cornfield maze, it is most definitely not simple.”
Thankfully, you still have a whole year to figure out exactly how the law will affect you. And if you’re someone who always procrastinates on their taxes, then we strongly suggest you make next year’s returns an exception.
To learn more about taking control of your finances in 2018, check out these related posts and articles from OppLoans:
- How to Save $2,018 in 2018
- Start Your New Year Out Right: Get a Credit Check!
- Should You Invest in Bitcoin?
- From Budget to Baller: 6 Tips to Grow Your Money
- How to Fix Your Bad Credit in 2018
|Mario Costanz is the CEO of Happy Tax (@happytaxservice). As a longtime avid blockchain and cryptocurrency enthusiast, Mario Costanz saw a need for quality tax preparation in the crypto trading community and launched CryptoTaxPrep.com as a division of Happy Tax. CryptoTaxPrep.com has positioned itself as the industry leader in cryptocurrency tax preparation.|
|Micah Fraim, CPA (@MFraim89) owns an award-winning accounting practice, has an Amazon bestselling book, and experience as a business analyst in the marketing department of a Fortune 500 company. As such, he brings a broader perspective than most any other accountant. For years he’s helped my clients find money that others have missed and helped them make maneuvers others had not thought of. He’s been featured on Forbes, MarketWatch, Time and you can learn more about his work at FraimCPA.com.|
|Jason Newcomer graduated from Missouri State University with a Bachelor of Science in Finance in 2010. He began working at Barber Financial Group in 2010, and was promoted to Advisor in 2012. Jason works to build his clients’ confidence and to help them to understand they can have the retirement they have always envisioned. His mission is to help as many people as he can to realize their financial goals. Jason is an Accredited Investment Fiduciary (AIF®), a CERTIFIED FINANCIAL PLANNER™ (CFP®).|
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