It’s 2018 and we are in full throttle into tax season. Time and time again people are asking me a lot of questions about what tax obligations will look like in 2018.
With the median American household income at around 60K, I felt that it would be a good gauge to share with you all some ballpark numbers on how the taxes will change in 2018 for both a single individual and a married household with two kids.
Please note: these calculations are just for reference only. Please consult a tax professional such as myself to see if you qualify for any other credits or deductions.
SINGLE TAXPAYER with No Children
The difference is about $1600! The standard deduction increase creates a lot of leverage against the personal exemption under the new tax reform.
However, keep in mind that this taxpayer’s marginal tax rate has been reduced 3 percent, from 25% to 22%, and that translates into an income which was taxed at 15% in 2017 will now be taxed at the rate of 12 % in 2018.
MARRIED TAXPAYERS with Two Children
The tax situation of families get tricky due to moving parts, this can be attributed to personal exemptions which in turn tilts tax liability in large families. Child tax credits can also swing the pendulum.
In this situation, the family includes a married couple with two children. The couple earns a total of $60,000 with no other sources of income. For comparison purposes, let’s assume they take the standard deduction in both years.
Give or take the family will have a pretty huge decline in tax liability, about $1,800!
The income rises because the personal exemptions outweigh the new higher standard deduction.
However, the new lower tax rate produces a smaller tax bill. The huge jump in the new child tax credit ends up producing an estimated net refund in 2018.
The new tax reform also allows up to $1,400 of each child’s $2,000 credit to be refundable, even if the taxpayer doesn’t other own any income tax.
Tax Savings Have the Potential to Swing Wildy
The examples I used are simple because they are common situations I see daily and what the typical filer looks like. Each family can contain tax variables which alter the tax situation.
Itemization becomes a new ballgame. Those who itemize may or may not see a tax break depending upon whether or not the deductions exceed the new standard deduction amount. To further complicate situations, many taxpayers should also acutely examine whether their local, state, sales, and property taxes exceed $10,000.
Sit down with a tax professional and see if you qualify for any other deductions or credits. Deductions exist, it’s up to you to sit down with a tax professional.
Family sizes matter. Joint filers with no children will see smaller savings because of the lack of child tax credit(s). Single parents will definitely see a great tax reduction due to the new laws.
Most of my clients earning $60,000 or less in 2018 will be seeing a smaller tax obligation due to the new law. It’s February and we are open year-round; please feel free to give us a call for a consultation to best capitalize on your annual tax strategies.