How the 2018 Tax Reform Affects You
Today, we have a special treat for you! We will be diving into the mysterious and exciting world of US tax law! So, yeah, in all seriousness, tax reform isn’t traditionally the flashiest of subjects, but it is important. As fraught as the political landscape has been in America, the 2018 tax reform is one of the clear victories of the current administration. But, what does it mean for you? That is what we’re going to lay out for you here. While I may mention politics here and there for context, I’m going to try my best to leave my personal biases at the door………(no promises, though)
Healthcare reform was a major flashpoint for both the major political parties. The Affordable Care Act (exponentially better known as Obamacare) has been the law of the land for the last eight years. The basics: If you didn’t get some kind of healthcare, either from the government or a private institution, you would incur income dependent tax penalties. This usually took the form of a “fine” on your tax return. You never had to pay anything out of pocket.
Under the new rules that individual mandate will be removed. Sounds great right? No penalties! Do what you want. The counter-argument to this is that healthy people will see no need to get private healthcare, leave the marketplace and drive up costs for everyone else. Higher costs mean fewer people getting healthcare which in turn means even higher costs and fewer people with healthcare. Hypothetically, of course.
Under a certain income threshold, parents earned a $1000 tax credit for every child under 17 they file as a dependent. Under the new plan, this number doubles to $2000, plus a $500 credit for every dependent over the age of 17. These changes, like most of the others, will be in effect until 2025.
At the highest levels, the corporate tax rate for income over 10 million dollars was 35%. That rate has gone down to 21%…Forever…
Congratulations! If you make more than $9,525, you’re getting a tax cut (unless you make $200,001 to $500,000. Sorry, Charlie.). At most the reduction is about 4% but that can be a fairly substantial chunk of change, depending on your income. Again, this change will only be in effect until 2025…and not forever…like the corporate one…Just an observation.
Personal exemptions are amounts of money a filer can deduct from their taxes for specific reasons like separately filing spouses, children, other dependents, or other defined special circumstances. The maximum amount changes every year, at least it did. The new tax law suspends personal exemptions until 2025.
Student Loan Discharge
Did you know that if your student loans get discharged due to death or disability, you, or the person who would inherit that debt would have to file that discharge as income? The new tax law undoes this practice until 2025.
These are just the broadest changes, affecting the most people. Tax law is extremely complicated and if you would like to learn more about all the changes, this is a great place to start.
All in all, the new tax reform is something of a mixed bag. It is highly beneficial for some people, somewhat beneficial for a lot of people (if temporarily), and detrimental to a few people. I hope you fall into one of the categories that gains more than it loses.