tax law - Tax Attorney Near Me | Ask An Attorney

One year after the so-called "middle class" tax cut, there's a clear victor: the wealthy. Even so, middle-class taxpayers still need to know how to brace for the new tax laws. And those changes are sweeping, more so than you might realize at first glance. If you're asking, "When do the new tax laws go into effect, and how will they affect me?" keep reading to find out more. When Do the New Tax Laws Go into Effect? First, let's answer the easier question: when do the new tax laws take effect? The changes resulting from the new tax law largely took effect in 2018. This means that they'll affect your income and expenses used to report your 2018 taxes filed in 2019. Many people were confused during 2018, as many changes were already happening to accommodate the new law. The law was also inconsistent. Two notable provisions did not take effect in 2018: Medical expenses The healthcare mandate Under the new tax reform, the 7.5% floor is in place for two years beginning January 1, 2017, which means that it applies to your 2017 taxes. Under this rule, you can only deduct expenses above that percentage of your adjusted gross income. Then, there's the healthcare mandate. Whereas medical expense changes took effect early, the repeal of the healthcare mandate takes effect in 2019, which means it won't affect your taxes until you file your 2019 taxes in 2020. What You Need to Know Those are the two notable exceptions. Most everything else took effect in 2018, which means it will affect your taxes for this coming Tax Day. An IRS attorney can help you sort out the minutiae of how the new tax law will affect you, but here are a few of the big ways the new law is changing the rules. Your Tax Brackets and Marginal Tax Rates First, take a look at your tax brackets. Wait, what? Most taxpayers don't pay too much mind to their tax brackets. This year, that's going to change because of your marginal tax rates. Marginal tax rates are the tax rates incurred for each additional dollar of income. As you can imagine, your marginal tax rates rise as your income rises. Basically, your income isn't taxed at one rate but at several rates depending on how much you earn. The idea is to create a fair distribution of taxation, as lower-income individuals are taxed at lower rates than high-earners. Because of this, your marginal tax rates are closely tied to your tax bracket. The thing you need to understand about brackets is that they tend to change year-to-year to account for inflation. Marginal tax rates, on the other hand, don't change unless a new tax law is passed that expressly changes them. Take a wild guess what the new tax law changed? This year, that's a good thing, especially for married filers. The marginal tax rates are slightly lower than they used to be, and the tax law removed the unintentional tax penalty that pushed married filers into a higher tax bracket when their income combined with their spouse's. Instead, the new brackets are simply doubled for joint filers. The Standard Deduction Another significant change is in your standard deduction. In fact, it's almost doubled. Your standard deduction is the automatic deduction in what you owe on your taxes. You've definitely heard of this before, as you have the option every year to accept your standard deduction or itemize your deductions. At first glance, changes to the new tax bill make itemized deductions even less attractive, as the standard deduction nearly doubled. However, it's slightly more complicated than that. You see, the 2018 reform got rid of the personal exemption, which allowed you to deduct your taxable income for yourself and any dependents claimed on your returns. In many cases, the boost in the standard deduction makes up for the loss of the personal exemption, but not always. Withholding Of course, there's an essential piece of this puzzle: your income. That's where your withholding comes into play. Part of the appeal of the bill was supposed to be lower tax rates and a higher standard deduction, allowing workers to adjust their withheld income taxes. In light of the new law, the IRS is encouraging taxpayers to review their withholding. Those who withheld too little may get a bigger paycheck in the meantime, but that gain could well be eaten up in taxes later. Of course, if you withhold too much, you're giving the government an interest-free loan (and they're not about to return the favor). The SALT Deduction Finally, there's the SALT (state and local taxes) deduction. The SALT deduction addresses whether or not you can deduct state income taxes and/or sales tax (if you decide to itemize your deduction--if you take a standard deduction, you probably won't see hide nor hair of this). In the past, there was no limit on the deduction of state and local taxes. Naturally, this deduction was one of the items up for debate in the new tax bill. Beginning in 2018, the itemized SALT deduction will be capped at $10,000 per return for single filers, heads of household, and married taxpayers filing jointly. Married taxpayers filing singly have a cap of $5,000. This is a serious disadvantage to those living in high-tax states like New York and California. That said, some states are considering passing laws allowing taxpayers to make charitable contributions to government funds in exchange for tax credits, allowing them to make up some of the lost deduction in the form of fully tax-deductible charitable contributions. Do You Need a Tax Lawyer? When do the new tax laws go into effect? In most cases, they already have, and that means they'll have an impact on the tax returns you file for 2018. If you're lost in the maze of tax changes, it's time to bring in a tax attorney to help. They know how to make sense of the tax law and can help ensure that you make the most of your money this year. Want to find out how we can help? Don't hesitate to get in touch today.

Tag Archive

When Do the New Tax Laws Go into Effect? What You Need to Know to File This Year