Beginning on Jan. 1, 2019, many of the tax law changes passed in Dec. 2017 go into effect. Many people have heard some of what will happen, but it may still not be clear enough.
This article looks at those upcoming changes, but exactly what they will mean for a certain individual or entity remains to be seen. Whenever laws change, they end up tested in the courts. For this reason, next year could be an interesting one.
The highlights
Below are the primary changes that affect individuals and businesses:
- The ordinary income tax rates for individuals drop through 2025.
- The standard deduction for individuals increases to $24,000 for married couples filing jointly and $12,000 for filing as single, which begins for the 2018 tax year.
- The alternative minimum tax exemption for individuals increases through 2025.
- The personal exemptions for taxpayers, spouses and children disappear through 2025.
- The exemption for gift, estate and generation skipping taxes increases to $11.8 million in 2018 and increases with inflation thereafter through 2025.
- Most itemized deductions disappear with the following exceptions:
- State and local taxes at reduced amounts
- Mortgage loan interest at reduced amounts
- Charitable contributions
- Investment interest expenses
- Medical expenses
- The alternative minimum tax for corporation disappears completely.
- The top corporate tax rate goes down to 21 percent from 35 percent.
- The allowable deduction for pass-through entities and partnerships becomes 20 percent, but limitations exist.
Tax laws regarding certain investments will not change, but you may hold onto carried interest for no less than three years in order to exceed the standard deduction.
The alimony change
One of the changes receiving a significant amount of attention revolves around alimony. Starting on Jan. 1, 2019, the individual paying alimony may no longer deduct it on his or her income taxes. On the other hand, it will no longer be taxable to the recipient. This may sound like a windfall for those receiving spousal support, but that may not actually be the case. If you plan to divorce and face paying alimony, you may want to ensure the divorce is finalized by Dec. 31, 2018 in order to retain the deduction.
The impact of the changes
As mentioned above, testing out these and the other changes to the tax law may take some time. These are the first major changes made to the tax code in several decades, and no one can be sure exactly how things will go.
Most tax attorneys have more than likely spent a significant amount of time reviewing the changes and determining how they will affect individuals and businesses. If you wonder how the new tax laws could affect you, it may be worthwhile to discuss the matter with a tax law attorney.