After months of hashing and rehashing what was (or wasn’t) in the tax reform bill — complete with what seemed like minute-to-minute cable news updates — some people may be confused by what ended up in the final legislation, and, more importantly, what the ultimate impact could be.
When you sift through many of the provisions that affect the average taxpayer, much of it is a wash. For example, there were many smaller deductions eliminated, but when paired against the almost-but-not-quite-doubled standard deduction, the result may end up being close to even.1
Congress retained some of the big-ticket deductions that were so controversial, such as the mortgage and state income tax deductions. There are limits to the amounts that can be deducted, and they will likely impact taxpayers in certain states, but most taxpayers will still be able to claim their previous deductions, or much of them.2
One questionable claim many public officials made was that this tax law will simplify filing. It may be a matter of perspective; there are still seven income brackets, and they changed to some extent. For example, the highest bracket was reduced from 39.6 percent to 37 percent, and the lower limit of this topmost bracket won’t kick in until taxable income spills past $500,000 (single filer) or $600,000 (married, filing jointly), but lowering or raising taxable income limits doesn’t inherently “simplify” the filing process.3
While many taxpayers will see some changes to the way they file or their tax bracket structure, relatively few will be greatly impacted by the tax rates and bracket changes. However, there will be some specific taxpayers significantly impacted — negatively or positively — depending on their individual circumstances. It’s just difficult to tell at this point who will be affected and by how much. Although we’re a year away from the 2018 filing season, where taxpayers will really have to address these changes, it’s a good idea to meet with a qualified tax advisor to assess how the new tax law could impact your situation and consider any adjustments you can make now to help mitigate any possible adverse tax consequences later.
1 Paul Katzeff. Investor’s Business Daily. Dec. 22, 2017. “6 Big Rule Changes for Individuals in The New Tax Bill.” https://www.investors.com/etfs-and-funds/personal-finance/5-big-rule-changes-for-individuals-in-the-new-tax-bill/. Accessed Jan. 19, 2018.