Congress recently passed major tax reform legislation known as the Tax Cuts and Jobs Act of 2017. This act is the largest modification to the US tax code in over three decades and means major changes for businesses and individuals. With half of the 2018 tax year already done, are you aware of how these reforms are affecting your military family and the tax return you’ll file next year?
One area of immediate note is the change to individual income tax rates. While there are still seven tax brackets, the income ranges have changed in several of them, and each new bracket has lower income tax rates, which will remain in effect until 2025. Also, the Act includes a new, permanent and more conservative inflation measure. Under this new measure, your wages may increase faster than the inflation adjustments to the tax brackets. For example, you might get a 3 percent annual raise, but the tax brackets may only be adjusted by 1 percent for inflation. If you’re close to the top of your current bracket, a seemingly small raise might be enough to push you into the next bracket.being taxed at a higher rate asure, you may see yourto your income tax income about $83,000 that will be taxed at a higher rate
Big changes were also made to the standard deductions, which nearly doubled for both married couples and single filers. That was offset however, by the elimination of the personal exemption— previously a $4,050 deduction per taxpayer, per dependent. Those with kids should also be aware that the child tax credit doubled to $2,000, though $1,400 of that will be refundable and an additional $500 credit was added for other dependents.
Finally, veteran business owners will see lots of new rules, including a new 21% corporate tax rate, a new Section 199A deduction for owners of pass-through entities, and changes to the deductibility of certain business expenses.
All these changes and more are in effect for the 2018 tax year, so it’s important to become familiar with the changes now so you can begin planning for next year’s tax filing. For a more thorough overview of the Tax Cuts and Jobs Act, check out AAFMAA Wealth Management & Trust’s most recent webinar “What the Tax Reforms Mean for Your Military Family.“ As always, AAFMAA Wealth Management & Trust Relationship Managers stand ready to assist you with your financial planning needs. Give them a call at 910-853-6149 or email firstname.lastname@example.org.
Disclosure: Information provided by AAFMAA Wealth Management & Trust LLC is not intended to be tax or legal advice. Nothing contained in this communication should be interpreted as such. We encourage you to seek guidance from your tax or legal advisor.