At the end of December 2017 a new tax bill was signed into law. Most of the changes it brings won’t affect the filing of your 2017 taxes, but the changes do go into effect this year. Getting a handle on what’s different now will help you make informed financial decisions throughout the year.
One of the biggest changes to the tax code has to do with tax brackets. The structure of the U.S. tax brackets has remained the same. There are still seven tiers and the brackets are still progressive. However, the parameters that define each bracket have seen some big shifts.
Tax Bracket Changes Part One: Tax Rates
Overall, the tax rates for the various brackets have gone down. In 2017 the seven tax rates for single filers were:
In 2018 the tax rates skew lower. The 2018 rates for single filers are:
While a couple of the rates are still the same, the overall trend is one of reduction. Even for the brackets in which the rate has stayed the same, however, the tax liability is different because the income parameters have also changed.
Tax Bracket Changes Part Two: Expanded Income Ranges
Long story short: As of 2018, more of your income will be taxed at a lower rate. In almost every bracket the upper level of the income limit has been raised. Comparing some of the 2017 and 2018 rates for single filers we can see this change in action:
- Bracket One: $0-$9,325 (2017) versus $0-$9,525 (2018)
- Bracket Two: $9,326-$37,950 (2017) versus $9,526-$38,700 (2018)
- Bracket Three: $37,951-$91,900 (2017) versus $38,701-$82,500 (2018)
In the first bracket, the tax rate is the same (10%), but more income is taxed at that low rate as of 2018. In the second bracket, the 2018 rate is lower and the income cap is higher.
In the third bracket, the tax rate is lower (22% in 2018 instead of 25% in 2017), even though the income cap is not higher. However, taxpayers will still see less tax liability at that income level because of the lower rate. This balancing act continues on through the rest of the tax brackets.
Everyone’s tax situation is different, so there’s no clear-cut answer about how these 2018 changes will affect people across the board. To find out what these changes mean for you, call the tax help professionals at Taxation Solutions, Inc. We are your source for tax assistance and planning in Charlotte and the surrounding area. Give us a call to set up an appointment with one of our team members today!