As the saying goes, only two things are certain in life: death, and taxes.
However, one of them may be getting a little simpler. The new tax bill attempts to get rid of a lot of exemptions, breaks, and loopholes that have historically made filing your own taxes harder than finishing the Sunday crossword.
But what does all this mean for you? We’ve rounded up the changes that will most likely affect the average H.E.N.R.Y.™ (those of you in your 20s and 30s making at least six figures).
Tax Bill Highlights
There are still 7 income tax brackets; however, some of the rates were lowered.
The new brackets are: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Those making six figures or more will likely end up paying less in federal income taxes beginning in 2018. Your effective tax rate is really just the tip of the iceberg, though.
The standard deduction pretty much doubled.
The standard deduction used to reduce your taxable income by $6,350 for an individual and $12,700 for a couple; now, it will reduce it by $12,000 and $24,000, respectively. This may mean fewer people will have to itemize their deductions. It may also eliminate the need to have an accountant to do your taxes for you, because taking the standard deduction is a hell of a lot easier than itemizing.
If you’re going the DIY route, we recommend TurboTax or Tax Slayer.
The child tax credit doubled, and a tax credit for non-child dependents has been created.
The new tax bill increased the child tax credit from $1,000/child to $2,000, and more people will be able to claim it—it’s available for individuals making $200,000/year and married couples making $400,000/year.
The non-child dependent tax credit is a temporary $500 credit for those taking care of an elderly parent, a child over the age of 17, or an adult child with a disability.
You can now use a 529 to partially fund education other than college.
Up to $10,000/year can be distributed to pay for public, private or religious elementary and secondary schooling.
Some favorites remain.
Deductions taken for student loan interest, medical expenses, classroom supplies for teachers, and purchasing electric cars are unchanged.
You Might Wanna Sit Down for These
It’s not all rainbows and sunshine. There are a few breaks that were changed or eliminated in the new tax bill that are likely to hurt some H.E.N.R.Y.s™.
There’s now a cap on state and local tax deductions.
You used to be able to deduct an unlimited amount of state and local taxes from your taxable income. Going forward, you’ll only be able to deduct $10,000. This might hurt some filers living in high-tax states like New York and California.
The mortgage loan interest deduction has decreased.
You can now only deduct the first $750,000 of mortgage debt, down from $1 million. Current homeowners won’t be affected, but if you were planning on buying a home in an expensive city, this might be a bummer.
Say adios to a few standbys.
Deductions for moving expenses, tax preparation, disaster relief (personal, not national), and the reimbursement for bicycle commuters are all gone.
Keep in mind, none of this matters for 2017. These changes will only affect your taxes for 2018 and beyond. The individual tax cuts are scheduled to expire in 2025, but since this is the first major tax reform in over 30 years, they probably won’t go away without a fight.
Get an even better idea of how the new tax bill will affect you using this tax calculator from The New York Times.
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