The recently passed Tax Cuts and Jobs Act will change a lot about the way individuals and businesses fill out their tax returns in 2019. Perhaps the most widely publicized aspect of the bill is that it significantly cuts corporate tax rates (from 35 to 21 percent). The top individual tax rate will drop to 37 percent, with the standard deduction being doubled and personal exemptions being completely eliminated.
These corporate tax cuts are permanent, but the individual tax cuts will expire at the end of 2025.
Here’s a quick look at some of the most notable effects of the Act that will affect next year’s tax preparation in Des Moines, IA.
Personal income taxes
There will still be seven income tax brackets, but the rates have been lowered. Here’s how those brackets will look:
- Bracket 1: 10 percent (previously 10 percent) up to $9,525 single, $19,050 married/joint
- Bracket 2: 12 percent (previously 15 percent) up to $38,700 single, $77,400 married/joint
- Bracket 3: 22 percent (previously 25 percent) up to $82,500 single, $165,000 married/joint
- Bracket 4: 24 percent (previously 28 percent) up to $157,500 single, $315,000 married/joint
- Bracket 5: 32 percent (previously 33 percent) up to $200,000 single, $400,000 married/joint
- Bracket 6: 35 percent (previously 33-35 percent) up to $500,000 single, $600,000 married/joint
- Bracket 7: 37 percent (previously 39.6 percent) $500,000 and above for single, $600,000 and above married/joint
The tax plan has numerous other effects, including doubling the standard deduction to $12,000 for individuals and $24,000 for married couples filing jointly. An estimated 94 percent of people will take the standard deduction beginning next year. The estate tax exemption is doubled to $11.2 million for singles and $22.4 million for couples.
Personal exemptions have also been eliminated, which means some families with more children will pay more in taxes despite increases in standard deductions. Most itemized deductions have been eliminated, but deductions for charitable contributions, student loan interest and retirement savings remain. However, there are limitations on mortgage interest deductions now in place.
Business taxes
The new Act lowers the corporate tax rate from 35 percent to 21 percent, which is the lowest the corporate tax rate has been since 1939, near the end of the Great Depression. The standard deduction has been raised to 20 percent for pass-through businesses.
Businesses will be able to deduct depreciable assets in one year rather than having to amortize them over the course of multiple years.
The Act also eliminates the corporate AMT, tightens up requirements on carried interest profits and allows companies to repatriate money held in foreign cash stockpiles. There will be a one-time tax rate of 15.5 percent for cash and eight percent rate on equipment being repatriated.
The Act will allow oil drilling in the Arctic National Wildlife Refuge, cut deductions for orphan drug research (drugs that target rare diseases) and maintain tax credits for electric vehicles and wind farms.
For more information about how the Tax Cuts and Jobs Act could affect you or your business next year, contact us about tax preparation in Des Moines, IA.