With tax season looming, the current administration is implementing changes to the tax code. Below, you’ll find a quick look at major tax code changes for 2018.
Higher Contribution Limits for Retirement Savings
Most retirement plans – think 401k, 403b and more – currently have a limit of $18,000 on employee contributions. The new code will increase that limit to $18,500.
Deductible Contribution Changes
Individual retirement accounts (IRAs) have contribution limits that are relative to income level, some of which will now be subject to change. The phase-out ranges for contributions to IRAs and Roth IRAs will increase for many people.
Increased Credits and Deductions
Those who are married and filing jointly will have a standard deduction of $13,000, a $300 raise from $12,700. Single taxpayers and those who are married and file separately will see their standard deduction rise to $6,500. For heads of households, the deduction will be $9,550. In addition to these changes, there will also be increased deductions and credits for children, as well as a new tax credit for non-child dependents.
Elimination of Estate Tax and Tax Cuts for the Wealthy
This change may be good news for the top 1 percent, but it is obviously not helpful for the distribution of income throughout the remaining 99 percent.
Reduced Taxes on Repatriated Funds
In an effort to bring work from American companies back to our shores, the administration has promised to reduce taxes for companies who make this move.
Simplified Tax Bracket System
The current tax brackets will be consolidated to create a simpler system. For example, the 39.6% tax rate will now affect individuals with an income exceeding $426,700. Top rate will now kick in for married taxpayers who file jointly at $480,050.
Tax Rate Changes for Small Businesses
This change is being implemented with the rationale that, by giving small businesses a minor tax break, they will be able to hire more workers, and thus decrease the unemployment rate.
Corporate Tax Rate Cuts
Similar to the change in tax rates for small businesses, the theory here is that these changes will stimulate economic growth and employment.
Perhaps the most dramatic change that the new tax code will generate is reduced government spending.