With all the changes to our tax laws of late, it can be confusing knowing what to do right now to file your taxes this April.
As we begin to get our first hint of spring here in San Antonio, it’s tempting to get out and enjoy the milder weather and watch the flowers bloom. However, April 17th is approaching and many of you are starting to gather the strength to do your taxes for the 2017 tax year. Thanks to the calendar this year, we get two extra days beyond the traditional April 15th deadline to file income taxes. It’s true that the Tax Cuts and Jobs Act (TCJA) brought about significant changes.
At USAA, we have provided guidance surrounding the tax changes and what it means to you over the last few weeks. And now that it is time to actually file your taxes for the 2017 tax year, let’s get down to “brass tax” (pardon the pun).
The TCJA changed tax rates for 2018 and beyond. The TCJA lowers the marginal tax brackets applied to most Americans (10%, 15%, 25%, 28%, 33%, 35%, and 39.6%) with corresponding lower rates: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. These relatively lower rates have been a welcome change for many allowing a bit more money in your paycheck this year. It may feel like the TCJA has already changed many things, but keep in mind that when you’re filing your taxes, we are talking about 2017 and not the new rules applied in your 2018 paycheck.
For your 2017 taxes, much is the same as it has been. So, stay focused for now on the 2017 rules to file your taxes. And then plan appropriately for 2018 to make next year easier and perhaps fulfill some of those other financial goals for your future as well.
To stay grounded in 2017 — while preparing for success in 2018 — let’s compare the old and new rules.
Tax Rates and Deductions –
As we file our taxes, most of us share the same goal: Reduce the amount of income we’re taxed upon to lower the amount we owe. There are two main methods, which are 1) to take the standard deduction, or 2) to itemize our deductions. Most Americans utilize the standard deduction1.
Itemized Deductions –
Much attention has been focused on the tax law changes to itemized deductions like state and local taxes (SALT), home mortgage interest deductions, medical expenses, and casualty or theft losses. Take note of these points affecting many Americans.
Mortgage Interest Deduction
*Note that the Affordable Care Act personal mandate will be repealed in 2019, removing the penalty for not having qualified health insurance. That change does not affect the mandate for 2017 tax filings. And the penalty could be as much as $2,085 per person or the premium for the national average cost of a Bronze plan – whichever is higher.
Casualty and Theft Losses
Changes to tax law may cause a little apprehension at tax time. However, filing your 2017 taxes will not be dramatically different than when you filed your 2016 taxes. Awareness of the changes for 2018 helps you prepare for next year, and make the best financial decisions possible throughout this year. But don’t stop with taxes. Keep up the momentum and start planning today for your financial future. Talk to USAA regarding your plans for the future and how we can help you make them a reality. Taxes are a concern to be sure, but proper financial planning involves much more than taxes alone. Talk to an expert at USAA regarding your retirement and other financial goals while money is top of mind at tax time.
Financial planning can give each of your dollars a mission for your success in 2018 and beyond. Take the time make your plan today. Who knows? Perhaps filing your taxes is the inspiration you need to create a brighter financial future. And then the spring flowers will smell a little sweeter this year.
Visit USAA’s Tax Center for information and resources. You can also speak with an advisor by calling 800-531-8722.
The contents of this document are not intended to be, and are not, legal or tax advice. The applicable tax law is complex, the penalties for noncompliance are severe and the applicable tax law of your state may differ from federal tax law. Therefore, you should consult your tax and legal advisors regarding your specific situation.
1 Source – Tax Foundation - https://taxfoundation.org/who-itemizes-deductions/
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