New Federal Tax Law Highlights

Late last year, Congress managed to push through a federal tax bill that would overhaul the whole system. President Donald Trump signed the bill into law on 22nd, December 2017. This was an incredibly significant event in the history of our country, seeing as it was the first major tax overhaul for over 3 decades. The last tax legislation change of this magnitude took place in 1986 under Ronald Reagan.

Now, Americans are just wrapping their heads around this, so here are insights into the things you need to know about the new tax law; 

  1. You will no longer enjoy the benefits of personal exemption – Under the old law, you were allowed to obtain $4,050 worth of tax relief for a spouse, each of your dependents and yourself. The net result would be a reduction in your taxable income, but this is going to change. You cannot claim that exemption anymore. This change won’t’ have a significant financial impact on people with small families, but it will definitely be felt by large families as their tax relief will significantly reduce, even if they receive incentives from other areas of the new law.
  2. The estate tax will affect very few people – Previously, a small number of people would be required to pay tax upon the transfer of property that usually happens when someone dies, known as the estate tax. The amount set for exemption was $5.49 million for singles and $10.98 for married people. Those two exemption amounts have now been raised two-fold, meaning that even fewer people fit into that bracket. This should be good news.
  3. Changes won’t take place immediately – If you are scrambling to get things right with your tax filing in April, then you shouldn’t be. While the federal plan is now technically the law of the land, the changes won’t be implemented until 2018. This means that you will file your April returns pursuant to the old system, which will clear up the confusion for a lot of folks.
  4. The individual mandate is out the window – Under the Affordable Care Act (ACA), individuals that failed to take out health insurance would be penalized. This was known as the individual mandate. Now, the GOP failed to roll back ACA in its entirety, but through their tax reform plan, they have effectively dealt a lethal blow to the individual mandate provision. The clause will be eliminated from the health care law in 2018. According to the Congressional Budget Office, that decision will cause a reduction in the number of people covered by 13 million come the year 2027. Premiums are also expected to rise by up to 10% over the years.
  5. The corporate tax rate is going down – The new tax law has reduced corporate tax to 21%, all the way from 35%. This is a plus for the economy, as it will allow companies to spend their savings on capital investments, and that will spur employment for the average American.

Federal tax law is not exactly easy to grasp, but this is a good point to start learning…Seek a good tax advisor to get help!