Our country just experienced a major tax reform. In this video, we will discuss how the changes in the 2018 Tax Reform will impact you and your business. While these changes will have a major impact on your tax preparation, they bring great opportunity for you to lower your effective tax rate. Some examples of these changes include a lower marginal tax rate, a 100% increase in the standard deduction, and which tax and interest payments can be deducted for those that itemize their deduction. Combined with how Section 529 plan funds can be used and how the Affordable Care Act (Obama Care) mandate has been lifted, this will certainly be a big year for tax savings.
Video Transcript - Tax Reform 2018
It's time to get down to the Brass Tacks. My name is Mel Sams, and I'm the managing associate of Sams CPA, and we're located in Dunedin, Florida. Today I'd like to talk to you about the major tax reform that we just experienced as a country and how it's going to impact you and your business. In this first broadcast, we're going to be talking about the impacts to individuals under the new tax law. Things are going to get very interesting and with great change comes great opportunity. One of the major changes that we're all going to see some benefit from is that of lower marginal tax rates. The brackets have all shifted down. Whereas before the top bracket was 39.6%, the top bracket's now 37%. Everybody experienced a downward shift. Another major change and one that I'm getting a lot of questions about right now is what about standard deduction? What about itemized deductions? What can I still deduct? So, I'm going to unpackage for us a little bit today.
Those of you that have been standard deduction claimers in recent years will now have an extra boost of about 100% more than what you're accustomed to having as the standard deduction. So, in the past, the standard deduction has been around six thousand dollars obviously indexed for inflation a little bit each year. I believe its been 6200, 6300, that's now going to over 12 thousand for single filers and similarly for married filers. Married joint, that is, the standard deduction will roughly increase by 100% so those of you in the past who have not been able to quite get to that level now have an extra deduction that will also help lower your effective tax rate on top of the marginal decrease.
And for those of you who itemize, here are some of the changes that are taking effect in 2018 that we need to be prepared for. Number one, in the past you were able to deduct an unlimited amount of sales tax, state income tax, property tax, and other ad valorem taxes that you may have been assessed. However, in 2018, that's capped at 10 thousand so that would open up a good opportunity to plan the timing of those certain tax payments to take advantage of the maximum deduction. Number two mortgage interest. In the past, we were able to deduct the interest paid on the first 100 thousand dollars of home equity line of credit debt. However, in 2018 we are no longer able to deduct that interest at all, and also, our miscellaneous deductions which for most people are comprised of tax return preparation fees, investment advisory fees, certain legal fees, and other job-related expenses are no longer deductible.
Now, you may say, "Well, how am I going to be experiencing lower taxes when I'm losing all of these deductions?" Well, that's where a good CPA comes into play. They can help you navigate through these waters and get to the other side coming out in better shape. One of the other provisions of the new law that I think is going to be very beneficial to a lot of people out there is expanded usage of section 529 plan funds. Under the new law, those 529 plan funds may now be used to pay for private school tuition for students in elementary through high school. That's going to be huge for a lot of clients. I've gotten that question year in, year out for many years if those 529 plans may be used for that, and now I can happily say, “Yes they can.”
One of the other provisions of the new law that will affect most Americans is that surrounding the healthcare mandate which was created under the Affordable Care Act several years ago. As many of you now know the Affordable Care Act required Americans making a certain amount of income to purchase health insurance either through the exchange or from a private carrier. Well beginning after 2018, the mandate on purchasing health insurance is gone. You are no longer required to purchase insurance under federal law. What we have discussed here today is just a small piece of the changes that are taking place in 2017-18 and future years under the new tax law. I highly recommend you seek out your most trusted advisor, a CPA, to help you navigate through these waters and to help you unpackage this and to see how it applies to your specific situation.
If you have any questions, comments, or ideas for future videos, please let us know.