Out with the old, in with the new.
Taxpayers have finished filing their 2017 taxes under the old rules for the last time. Looking ahead, filing should get easier for many, but not for everyone.
“The new tax rules that began in 2018 might not have simplified the complicated things in the tax code,” said Conrad Seales, a certified public accountant in Santa Cruz. “But they should reduce the tedium for many taxpayers. Unless you have a business or a rental property, you probably won’t be adding up receipts anymore.”
The new rules double the standard deduction for single taxpayers from $6,000 to $12,000, and for couples from $12,000 to $24,000.
When $12,000 was the threshold, a lot of couples found that itemizing deductions would save them money, even though it greatly complicated their tax returns. Far fewer couples will be able to find $24,000 in deductions. Itemizing won’t save them money, so they’ll opt for the standard deduction.
Under the old rules, about 70 percent of filers used the standard deduction, according to the Tax Foundation. The Washington, D.C.-based think tank says that could increase to about 90 percent under the new rules.
When Republicans in Congress and President Trump were promoting tax reform, they held up postcards saying their goal was that “most Americans would be able to file their taxes on one of these.” They fell short of that goal.
The basic forms and process for filing a return with the standard deduction or with itemized deductions will not change much, said the Tax Foundation, but it added that using the standard deduction rather than itemizing certainly makes filing taxes a simpler process.
Another goal of tax reform was cutting corporate taxes. This was not just a Republican goal. President Obama in 2012 noted that the 35% U.S. corporate tax rate — among the highest in the world — was driving some businesses to relocate overseas, taking jobs with them. Obama proposed lowering the rate from 35% to 28%, but gridlock in Washington stopped him from getting it done.
The new tax law lowers the corporate rate from 35% to 21% and provides other breaks to business. But business owners who want to take advantage of those breaks may see their tax returns become more complicated.
The new law also lowers tax rates for individuals, but for high-income Silicon Valley workers and owners of million-dollar-plus homes, new limits on deducting state income taxes and mortgage interest are likely to wipe out any savings from lower federal tax brackets.
Mark Rosenberg is an investment advisor with Western International Securities in Scotts Valley, a member of FINRA and SIPC. He can be reached at 831-439-9910 or [email protected].
