2018 Income Tax Changes For Individuals Explained

This is NOT tax advice, please talk to an IRS lawyer first.

Machine Video Transcription Below

Hello and welcome to money in life TV,  my name is Mike welcome to 2018 everybody and since it’s the start of 2018 what better topic to start off with then tax reform! In today’s video I’m gonna be covering in plain English many of the 2018 tax law updates that will affect your personal tax return if you are new to our channel.  I just want to take a moment and say welcome if you’re somebody who’s interested in learning more about finances more about how taxes work more about investing then I would highly consider subscribe to our channel as we produce new videos every single week around the subjects and we also produce videos that are gonna help you in your career and your life.

if you find this video helpful please don’t forget to hit that like button before you leave. Alright let’s get started.  Just a reminder that for 2017 for this tax season and the one that’s coming up in April, remember, you’re still gonna follow the 2017 rules. OK many people are getting it confused which is easy to do these new tax law changes are really gonna impact the return you file in 2019. Just keep that in mind you were still for 2018 on April 15th we’re still gonna follow the 2017 tax law.

Income Tax Changes for 2018

I thought the easiest way for me to show you this information and talk about the tax cuts in jobs acts 2018 tax reform bill was actually to show you on screen so that you have a visual of everything we’re gonna be talking about. What I did is I made a spreadsheet based off many sources and just so you know here’s some links to the sources I use to create this spreadsheet.  if you want more detail or if you feel there’s something hey Mike you didn’t cover 2018 tax reformthat well check out those links there’s a ton of information in there including including a link to the actual legitimate tax bill itself now if you’ve never seen a tax bill what it looks like you can actually find them on the Congress gov so but I already have it up so just so you know what a real tax bill looks like oh my goodness it’s a real tax bill this is what it looks like so once they’ve you know battled it out in Congress and it’s went through the house the Senate the Ways and Means Committee and all those different places then they get this bill finalized and as you can see if you have trouble sleeping at night then please feel free to read this.

It’s a hundred and eighty five pages of legal jargon about tax cuts and what more could you ask for really ladies and gentlemen I couldn’t ask for more myself I have not had trouble sleeping since but this is where the official bill is and this is where you can read it but anyways so let’s go to this spreadsheet I put together for you and I have a nice little present for you is the spreadsheet itself so what I’m gonna do is I’m gonna put a drop box link to this spreadsheet so you can download it for yourself and you don’t have to recreate the wheel or anything and what I did to create this is I read probably 20 to 30 pages of information and I pulled what I felt to be the most important aspects of this tax bill for your individual taxes now remember we’re just talking about individual taxes and put them together in the tables and visual forms in the spreadsheet so all you have to have the Reta is Microsoft Excel if you don’t have Microsoft Excel I’ll see if I can get it to you in another format but just you know let me know and like I said I always do recommend you do your own research on this kind of stuff if you want to learn more so let’s go ahead and get started so let’s start off we’re talking about rates cuz that’s one of the biggest changes that has just occurred is the tax rates themselves so revised tax brackets and I’ve only showing two statuses here if you file single and if you filed married find joint why because those are the most two common filing statuses that are out there as you can see the 10% is still pretty much the same however overall though the rates have decreased okay on so this like the 12% bracket I will tell you that that used to be 15% the 22 percent bracket used to be 25 percent okay so basically the tax bracket rates reduced on average by 3 percent per bracket if you want to know more about brackets work that I highly encourage you to go check out this video I made about how federal income tax brackets work and I tried to make it fun by using a stuffed animal to explain how taxes are calculated so check it out I think you’ll find it helpful if you don’t quite understand how this actually calculates out and how it impacts your paycheck speaking of paycheck you might want to check with your payroll department of your company or firm wherever you’re working at and see what they’re doing with your withholdings depending on who you are you might have to up with your withholding sleeping on how much you know income you make or you might decrease it a little bit if you know with these new tax savings so it’s just depends ok one of the major changes is with the standard deduction what they’ve done is they’ve basically took the standard deduction and they’re gonna double it for you so you’re gonna get a higher standard deduction which means in plain English you pay less tax so it’s not a bad thing at all so in 2017 you can see that if you were single your standard deduction was 6500 if you were married it was 13,000 well look at 2018 now in 2018 if if you’re a saint filing single your standard deduction is now 12,000 and you’re married filing joint standard deduction is now 24,000 very nice very nice so that is that is very pretty and with it being twenty four thousand I expect even less people to itemize than before so the next thing let’s talk about is personal exemptions so the standard deduction is more favorable for us however what they did in this new tax bills they took away personal exemptions and so when parents said oh we’re gonna if you were you know if your remember when you were growing up your parents said well we’re gonna claim you on our tax return well when they said we’re gonna claim you what they really meant is that we want a deduction for putting it for claiming you on our tax return and that deduction they were talking about is the personal exemption well what they’ve done in this new tax bill is take it away so before then every exemption or every person you claimed like your spouse your kids etc that for each person you were getting 4050 dollars in in an income exemption so it reduced your income so what they’ve done essentially is for 2018 that the whole idea of you know the more kids you have the more higher deduction you can you can get that’s not the case anymore they’ve taken away personal exemptions so you it doesn’t matter if you have one kid or ten kids you’re not gonna get that personal exemption you’re not gonna get that 4050 dollars per child anymore for 2017 you will just remember that but for next year when in 2019 when you go to filing your tax return you’re not gonna have that anymore so that’s kind of a downside so they’ve gave you more deduction on first your standard deduction but they’ve taken away your personal exemption let’s go ahead and move on and as you’re watching this guys feel free ask me questions you know leave those in the comment section down below I’ll do my best to respond I know a lot of this information is still brand new and there’s a lot of work that still needs to be done to sort all this stuff out so I will do my best to answer your question to the best of my ability so the next thing so since they did take away personal exemptions obviously a lot of people are not happy about that so to kind of offset that a little bit they’ve also increased this child tax credit which is a good thing that means for your for your taxes that’s a good thing it’s gonna help you save tax so as you can see here in 2017 the credit amount was up to $1,000 the refundable amount and that’s a the child tax credit is a refundable credit which means if you owe even if you own no tax if you get this credit you’ll still get a refund which is great so what they’ve done for 2018 is they said okay well we’re gonna up that credit amount to two thousand and if a person ends up owing no tax at all well we’re gonna still gonna refund them fourteen hundred dollars of that so they’ve given you a slightly better child tax credit so which is that’s pretty cool let’s go on to state and local taxes which is if you might have heard the acronym salt well that’s what it is that’s what they mean when you hear the term salt state and local taxes so this one is big this is one of the biggest changes they made and so what they did is they’re gonna limit how much we can deduct our itemized for state local taxes now you would not unless you itemize is that let me just make this clear so there’s a lot of because a lot of people don’t really and this not there’s nothing bad but a lot of people don’t understand tax so unless you’re able to itemize you would get no benefit from the state tax deductions anyways but if you did itemize these deductions were huge in fact they were crucial and allowing you to itemize in the first place so in 2017 as you can see all state tax amounts are deductible your property taxes your state income taxes if you live in a state where you pay income taxes like California New York you know I’m sure there’s plenty other is that you guys can you know name up top of your head those are two examples and also included is things like your sales taxes property taxes etc now in 2018 as you can see this is limited now at ten thousand so you know up up to ten thousand dollars in total meaning of all of your Inc state income taxes property taxes whatever you know once it hits that ten thousand dollar mark it doesn’t matter you cannot have any more than that they’re limiting you to that amount so basically if you’re somebody who works in a high incomes tax state or pays a lot of property taxes this is gonna hurt you and if you itemized if you heavily itemized on your tax return to save a lot of tax probably gonna be end up paying more tax because of this new bill unfortunately okay let’s go down to mortgage interest deductions I saw a lot of confusion around this one a lot of people were saying oh I need to go sell my house or or because I need to go buy a house right now before these new tax bills take effect because I won’t be able to deduct my mortgage interest that’s simply not true and it just shows how much of a lack of understanding there is when it comes to taxes so if mortgage interest deductions your mortgage interest is still deductible let me make that clear your mortgage interest is still deductible so let me show you the difference right now so in 2017 your mortgage acquisition meaning you took out a mortgage to buy a home you were in 2017 you were up to you were allowed to have up to 1 million dollars in mortgage debt and you would still be able to deduct that interest that mortgage interest if you were able to itemize follow me but mortgages existing before 2018 will not be affected so if you already have a mortgage you’re fine don’t even worry about it you have nothing to worry about it’s only dealing with Mortgage acquisition debt you you incur after are starting in 2018 and also in 2017 your home equity loan interest is deductible big change here in 2018 that is gonna be no longer the case so in 2018 your home equity loan interest is no longer but gonna be deductible so if you if you think you can borrow a ton of money from your home you know take a huge home equity loan and buy all this stuff and still be able to deduct it that extra interest you’re gonna be out of luck so keep that in mind so that’s a big one that’s a big change but now let’s take a look at the the interest for mortgage acquisition debt so it’s so you can still take out a mortgage up to seven hundred and fifty thousand dollars okay so it’s really not that different right from a million dollars and you can still deduct that mortgage interest so that’s the mortgage interest deduction so let’s let’s go ahead and move down to the next one I’m going kind of fast but you guys just let me know if you have questions miscellaneous itemized deductions that are subject to 2% floor or repealed so what what the heck does that mean so basically it means if you had unreimbursed employee expenses like your job job travel union dues job education except legal fees tax preparation fees so normally you’d be able to deduct your accountants preparation fees if you were able itemize now it’s no longer be the case I’m gonna count it as you can see I’m not too happy about that one because obviously my clients too want to be able to deduct so what they pay me investment fees safety positive boxes at fees etc you’re no longer to be able to deduct those as I don’t mean deductions but once again unless you itemize it doesn’t matter anyways because you’re gonna get the standard deduction let’s talk about education there was a lot of heat around education and initially a lot of the education credits and so forth were up for grabs of being impacted and repealed but luckily those are still in effect so as you can see what I wrote here is education credits will remain unchanged there will be some modifications to 529 plans and able plans but I am not aware of the details of those changes at this time so that’s what I’ve heard I know if you know where those changes can be found or if you want to know more let me know but I am I don’t know the details of those changes this is something to be aware of okay let’s go ahead and let’s what about your 401k there was a lot of talk about your 401k deductions being limited so you know what you contribute from your check to your 401k they left it on James they didn’t touch it so contribution rules are still the same so basically if you’re working somewhere if you have if you you’re part of your employers qualified retirement plan you can still the defer up to $18,000 of your income to your 401k and if you’re under sorry guys my phone’s going off let me turn this off real quick my mom is trying to bombard my phone while I’m trying to film this video okay so that if you’re under the age of 50 with your 401k you can contribute up to $24,000 of that okay so a 401k on change I just want to point out this one the alimony oh this is where it gets interesting for me so this this is big guys so normally just so you guys know if you have a spouse and you’re divorced and you have to the court orders you to pay alimony to them then whatever amount of alimony you give them let’s say it’s like $10,000 okay well that amount you would you would not count in your income because you had to pay that money to them and they would include it on your ex-spouse would include that on their tax return so this is interesting so with his new alimony change the spouse who pays alimony is no longer allowed an income adjustment it’s like what so thus we get this in the person who receives the alimony no longer has to claim the income now when I first read this it I was thinking okay so first I’m like okay maybe they just you know they’re it’s a more conservative party that’s in office right now so maybe they just want to encourage longer lasting marriages but I don’t know so if you were don’t hear me out for a second if you were thinking about divorcing your spouse and you knew there was a good chance to get alimony wouldn’t this be even a greater incentive to leave your spouse because you’re gonna get tax free money from them you don’t even have to claim it anymore I’m not a fan of this one anyways that’s just my opinion but tell me what you guys think what do you guys what do you guys think of that new new ruling cuz I I know some people who pay out a lot in alimony and I think the fact that they cannot deduct it is completely unfair but that’s just my opinion anyways none of that so let’s go now move now into federal estate tax because this one is massive now federal estate tax is huge it’s a huge deal now honestly probably less than 5% of the entire population isn’t affected by that but by it it’s in fact all less than 1 in 10,000 people have to even file an estate tax return but you know you might have heard that this bill does benefit the rich well of course it does because that’s all tax bills if you haven’t noticed generally favored business owners enough so of course if you’re super wealthy of course you’re not gonna like the estate tax so what they did they couldn’t completely repeal it so it’s still in effect but they’ve doubled the exemption amount on it so in 2017 if you were single you had basically five and a half million as you guys can see here five and a half million dollars in assets anything above that you would have to pay a state tax on and if you’re married if you had around eleven million dollars in assets anything above that you would have to pay a state tax on and just so you guys know if you don’t know what a state tax is it’s it’s freaking brutal it is so and I I’m not rich at all and I hate it so imagine that just to give you a brief idea of what a state tax is without going into too much detail imagine you’ve worked your entire life you saved you scrimped you you work your butt off and you built your own business you saved up millions and millions of dollars you were responsible to your money you came out well you did very you were you you didn’t inherit it you would you came you know you became well-off and let’s say you you know you were single and you had ten million dollars now okay ten million dollars in assets when you die well in 2017 you could you could say okay well of the ten million dollars anything of my exemption of five and a half million dollars anything above that is subject to estate tax so what the IRS does is that if they would come in they would see your ten million dollars and they would say well you have two million dollars your exemption is only five and a half so four and a half million dollars of that is subject to estate tax and because we feel like we need to you have too much wealth we’re gonna tax you on that remaining four and a half million dollars in assets and tax you at forty freaking percent that’s right that’s basically what a state tax is is if you’re too well-off when you die the government steps in and basically taxes you once again and takes nearly half of your wealth so the estate tax is ugly and I hate it I hate it personally but what they’ve done with with this bill and this is greatly as you can see this is good know once you know that I explained that this is gonna be greatly favored I mean it’s gonna really help out people with a lot of assets so now if you’re single you can have 11 million in assets before paying any estate tax now if you’re married you can have up to 22 million dollars in assets before paying any estate tax at all so remember anything anything over these amounts is taxed at 40% so but that’s so that’s a huge benefit for people with a lot of money a lot of assets so that they’re very happy about that and it’s gonna greatly impacts the estate planning going forward a couple other things we’re gonna start to wrap this up so alternative minimum tax so just real quickly if you’re single your exemption amount is around seventy thousand if you’re married it’s around one hundred nine thousand this is for people who make a lot of money this alternative minimum tax is not something that affects most people it’s highly complicated so I’m not gonna go into detail on that if you want me to I can I can make a separate video on it but it’s a highly complicated tax topics very complex there’s but there’s also a new alternative minimum tax phase-out amount so the phase-out begins at five hundred thousand if you’re single and the exemption amount is 1 million dollars if you’re married Affordable Care Act so this one’s big so let’s read it repeals shared responsibility requirement for full coverage health insurance so as you guys know let’s step back for a second that if you once Obamacare are you know the Affordable Care Act came into play you would be penalized if you were if you and your family did not have full coverage health insurance so what they’re doing with this is they’re gonna start repealing that penalty meaning that penalty is no longer you’re gonna be in effect however for you know if you don’t have health insurance however it is still in effect in 2017 and to my knowledge it’s still gonna be in effect for 2018 as well I’m not sure about the 2018 part but I would expect that you’re gonna need to have full coverage health insurance to avoid penalties for 2017 and 2008 so a couple other things I thought that really should be mentioned because a lot of people might be wondering is capital gain rates essentially gonna remain the same they’re gonna be indexed for inflation so that no changes their casualty theft losses no longer applies unless a federally declared the vast disaster so if some of the stills from you or damages your property can’t really get a deduction for anymore unless it’s something like a major fire tornado hurricane that’s declared a federally declared disaster movie in reimbursement this one’s interesting moving reimbursement and moving deduction suspended for most people except Armed Forces so basically now if you’re moving from one job to another you could you’re no longer gonna be able to get the moving expense deduction starting in 2018 so just keep that in mind unless you’re part of the Armed Forces our military that terribly deductions a lot of people were wondering about okay what about if I donate to charity how does that impact me is that still you know is that still a thing it’s still in play nor in 2017 it’s limited to 50% you can donate up to 50% of your adjusted gross income is still good to do direction if you itemize so once again if you itemize then it matters if you don’t itemize doesn’t matter yeah with a new higher AGI threshold now is 60% instead of 50s I don’t know if it’s gonna impact donations to charities yet is we’re gonna have to see but you know if we’re gonna find out who is really giving to be generous versus who is giving for a tax deduction because with the new with the new rules the new tax rules it’s less likely that a person’s gonna be able to itemize in the first place so maybe they don’t donate as much we’ll see I don’t know what do you guys think how do you think that’s gonna play out now if you guys want more detail on any of the stuff we’ve talked about today check out these articles there’s one information our block without it did a nice little recap and I think they have a lot of the business stuff in there too and also check out the official bill if you’d like to really know how that works or if you want to see the real bill and need help falling asleep at night great there’s a great recap by Tony Nitti he’s a writer for Forbes and it’s a like a 20 page article but it’s in plain English and it’s pretty easy to understand pretty much most of what we talked about and I forgot to mention at the beginning of this video is most of these tax changes to my knowledge are gonna expire at the end of 2025 you know after that I don’t know what they’re gonna do like I said earlier if you want me to do a video on the business update so the the tax law of business changes let me know I can put one together and that’s pretty much it guys I just wanted to cover many of the key points if I didn’t cover something and if you have a question I’m happy to respond let me know I will do my best to answer your question and I can also you know point you to some resources as well so hopefully I’ve explained this in a way that will help you and it make sense to you so if you liked the video make sure you drop a like let me know that you liked it share this information with a friend especially this information because I especially the spreadsheet because I’m remember I’m gonna leave it in the description section below of this video you’re gonna find a link where you can that spreadsheet for yourself feel free to share it with others feel free to share it with your friends because I I do think this video is gonna be really helpful for a lot of people and clear up a lot of confusion it’s I couldn’t find anywhere on the internet that summarizes some of these main points like this I had to do it myself because I couldn’t find it so that’s why if summarizes information for you hopefully it’s nice and easy to follow if you have not already subscribed to this channel be sure to subscribe because every single week chipper and I produce new videos they’re gonna help you improve your fine just position your career and life and we do that by teaching you more about your personal finances investing taxes and more so thank you for taking time out of your day to watch this video I hope you found this information helpful and until next time I love you all and I will see you in the next video bye guys pace

 

 

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