For individuals in the Puget Sound area, these are some of the main parts that will affect us:
1) Marriage penalty is gone for couple’s earnings under $400k. In the old law, two individuals making similar incomes would be penalized by getting married and then being taxed at the joint rates. Now, the single rates are essentially doubled up to $400k for married tax rates. Great for dual income families.
2) Child tax credit has increased and phase-out begins at joint incomes over $400k. Previously, the phase-out for the child tax credit began at $110k for joint filers. Now only incomes over $400k will begin the phase-out on the $2,000 tax credit. Great for families previously phase-out at the much lower limit.
3) Sales tax deduction is no longer as valuable. The cap for property tax and sales tax deduction is now $10k. So for many homes in this area, property taxes are $5k - $10k and your IRS table sales tax deduction is about $3k - $5k. Large home improvement type items such as a new roof, a home build-out, new HVAC system were all allowed to have their sales tax deducted on top of the IRS table amount. With our sales tax being at 10%, this meant, you could offset about 25% of the tax by taking an additional sales tax deduction (about $500 on a $20k roof…it’s something). A negative for people remodeling their homes who are close to or over the $10k cap.
4) You may not need to itemize, but it’s still good to check! For a household with about $15k in mortgage interest, $10k in property tax and sales tax deduction, you’re already over the new standard deduction of $24k. Add in charitable deductions, the RTA tax for vehicle registration renewals and you’ll be saving quite a bit more filing Schedule A then if you just took the standard deduction. At the 24% tax rate, if you have $29k in Schedule A deductions, you’ll save $1,200 in tax by filing the form. Worth filing in all cases.
5) Are you a contractor, self-employed or a business owner? If so and you make under $315k filing jointly, you’ll be able to deduct 20% of your income! There is no official guidance yet, but filing a Schedule C with qualified business income under $315k will allow you this deduction along with any income from pass-through entities.
Quick example: someone making $150,000 contracting with a big tech company. If you file a Schedule C and/or you have income that is passed through to you, you’ll pay $36,000 in taxes (@ 24% marginal tax rate). With the new deduction for 2018, you’d pay $28,800 in taxes (at the same marginal tax rate). That’s $7,200 in tax savings! If you’re a contractor, self-employed or an owner of a business making under $315k of income filing jointly, make sure your accountant deducts this for you!
Tax savings scenarios - take with a grain of salt...
