If Congress is successful in repealing the Affordable Care Act, this could potentially go away, but it remains for the time being. I mentioned earlier that the personal exemption is going away, which could disproportionally affect larger families.
However, this loss and more should be made up for by the expanded Child Tax Credit, which is available for qualified children under age Furthermore, the Child and Dependent Care Credit , which allows parents to deduct qualified child care expenses, has been kept in place. Earlier versions of the tax bill called for reducing or eliminating some education tax breaks, but the final version does not. Specifically, the Lifetime Learning Credit and Student Loan Interest Deduction are still in place, and the exclusion for graduate school tuition waivers survives as well.
One significant change is that the bill expands the available use of funds saved in a college savings plan to include levels of education other than college.
In other words, if you have children in private school, or you pay for tutoring for your child in the K grade levels, you can use the money in your account for these expenses. Perhaps the most controversial aspect of tax reform on the individual side was the fate of the SALT deduction. Early versions of the bill proposed eliminating the deduction which stands for "state and local taxes" , which didn't sit well with some key Republicans in high-tax states. While many deductions are remaining under the new tax law, there are several that didn't survive , in addition to those already mentioned elsewhere in this guide.
Gone for the tax year are the deductions for:. While we're on the topic of deductions, many of these may now be a moot point, even to taxpayers who have been using them for years. Even though most major deductions are being kept in place, the higher standard deductions will make itemizing not worthwhile for millions of households. Republicans were unsuccessful in their efforts to repeal the Affordable Care Act, otherwise known as Obamacare, in However, the tax reform bill repeals the individual mandate, meaning that people who don't buy health insurance will no longer have to pay a tax penalty.
It's worth noting that this change doesn't go into effect until , so for , the " Obamacare penalty " can still be assessed.
The new tax code makes a big change to the way pass-through business income is taxed. This includes income earned by sole proprietorships, LLCs, partnerships, and S corporations.
The alternative minimum tax AMT was implemented to ensure that high-income Americans paid their fair share of taxes, regardless of how many deductions they could claim.
Essentially, higher-income households need to calculate their taxes twice -- once under the standard tax system and once under the AMT -- and pay whichever is higher. The problem is that the AMT exemptions weren't initially indexed for inflation, so over time, the AMT started to apply to more and more people, including the middle class, which it was never intended to affect.
So, the tax reform bill permanently adjusts the AMT exemption amounts for inflation in order to address this problem, and makes them significantly higher initially in Here's how the AMT exemptions are changing for In addition, the income thresholds at which the exemption amounts begin to phase out are dramatically increased.
Perhaps one of the most significant, but least talked-about, provisions in the new tax bill is the switch in the way inflation is calculated. Under the previous tax law, inflation is measured by the consumer price index for all urban consumers CPI-U , which essentially tracks the cost of goods and services that affect the typical household. The new law adopts a metric called the Chained CPI.
My colleague Sean Williams does a great job of explaining the Chained CPI , but essentially the key difference is that the Chained CPI assumes that if a particular good or service gets too expensive, consumers will trade down to a cheaper alternative.
This means that tax bracket thresholds will rise slower, as will other IRS inflation-sensitive numbers, such as eligibility limits for certain deductions and credits.
Many tax provisions—both at the federal and state level—are adjusted for inflation. Taxable income is the amount of income subject to tax, after deductions and exemptions. For both individuals and corporations, taxable income differs from—and is less than—gross income. January 2, Amir El-Sibaie. Download PDF.
Launch Now. Was this page helpful to you? Thank You! Let us know how we can better serve you! Give Us Feedback. Share Tweet Share Email. Tags Tax Brackets. About the Author. Follow Amir El-Sibaie. Related Research. Select basic ads. Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights.
Measure content performance. Develop and improve products. List of Partners vendors. Your Money. Personal Finance. Your Practice. Popular Courses. Table of Contents Expand. Passing the Tax Cuts and Jobs Act. You Own a Home. You're Buying or Selling a Home. Itemizing Your Deductions. Casualty and Theft Losses. Medical Expenses. State and Local Taxes. Eliminated Deductions. Taking a Personal Exemption. Child Tax Credit.
Using Plans for School. Elderly Dependent or Child Over Federal and Private Student Loans. Changes in the Tax Bracket. High-Income Tax Liability. Middle-Income Tax Liability. Low-Income Tax Liability. Pass-Through Business Taxes. Taxing Multinationals. Corporate Tax Rates.
You're a Tax Professional. What's Permanent, What Isn't. The Bottom Line. The nearly page Act extensively changes the tax code for institutions and American citizens with a focus on cutting individual, corporate, and estate tax rates. Nearly everyone in America is affected by the tax changes, but the effects are highly dependent on personal and business situations.
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Related Articles. Partner Links. The marginal tax rate is the tax rate you pay on an additional dollar of income. Kiddie Tax Definition The kiddie tax is a tax law imposed on individuals under 19 or 23 years of age whose unearned income surpasses an annually determined threshold.
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