There’s been a lot of talk about the recent tax bill changes and there are quite a few. We won’t be going over the hundreds of pages of the revisions but instead reviewing the pieces that are important to you.
New Tax Bill
The three areas that we will focus on are:
- Individual Income Tax Rates
- State and Local Tax (SALT) Deductibility
- Standard Deduction
Tax Rates
The lower individual tax rates that were enacted in 2017 as part of the Tax Cuts and Jobs Act (TCJA) are now permanent with no scheduled sunset. So from a federal income tax standpoint, nothing will change in terms of the tax brackets with the recent tax bill changes.
The top tax bracket remains 37% for the highest earners. Looking at tax rates historically, the top bracket is still relatively low. In 1986 the top bracket was as low as 28% and in 1945 the rate was as high as 94%.
State and Local Tax (SALT) Deductibility
The SALT deduction has been a hot topic over the past several years. Prior to TCJA, the SALT deduction was unlimited, but the TCJA placed a $10,000 limit. This is challenging in high tax states like California and New York.
The new legislation increases the SALT cap to $40,000 in 2025 and increases by 1% each year until 2029. In 2030, it reverts back to $10,000. Additionally, there is a $500,000 income limit on the SALT deduction. Once you make $600,000 per year, the SALT cap is reduced to $10,000. When earning between $500,000 and $600,000 the amount you can deduct under SALT gradually declines. Confusing new tax bill? You bet.
So if you live in a high tax state and you make $500,000, there may not be much incentive for you to earn more because of the declining SALT deductibility. Spending extra time hunched over your laptop is something to ponder.
Standard Deduction
The standard deduction amount increases by $750 to $15,750 for single tax filers and by $1,500 for married couples filing jointly to $31,500.
You get a little bit extra in the standard deduction, but it’s nothing to really write home about. However, if you itemize deductions and they are above the new limit, that could be advantageous for you.
Wrapping it Up
These are just three of the many changes in the new tax bill. Your tax picture depends on your situation and it’s always best to consult with a tax professional – CPA – about these matters. This article is for informational purposes and does not constitute tax advice.