After nearly three decades, the government has passed a bill that affects the taxes that are paid by taxpayers. However, these legislations apply for the year 2018. Considerable changes have been made to individual income tax, gift and estate tax, and corporate tax.
To keep you up-to-date with the recent changes made by the government and to keep you aware of what you have to pay from the year 2018, we have listed some of the major changes below.
Individual Income Tax
The bill did not change the seven tax brackets, but it lowered some of the tax rates. It also altered the income thresholds at which the rate is applied. The previous brackets were 10%, 15%, 25%, 28%, 33%, 35% and 39.6%. The new brackets are now: 10%, 12%, 22%, 24%, 32%, 35% and 37%.
It is said that the marginal income tax rates will go back to their original rates — the 2017 ones — in the year 2026.
Corporate Tax
The corporate income tax will be lowered to 21 percent starting 2018.
Sole proprieties, partnerships, and limited liability companies will be taxed at individual tax rates only and will be able to deduct a 20 percent deduction of qualified business. However, certain industries like health, law, and other professional services like law, consulting, and accounting are excluded from this. This pass-through business deduction is only applicable for joint businesses that have an income above $315,000 and for individual businesses that have an income above $157,500. This provision is said to expire on December 31, 2025.
All of the above means that your business can only benefit if you have many employees. It’s actually a reform to encourage companies to hire more employees and expand their business.
Estate and Gift Tax
The federal state tax is the same, but the estate and gift tax exemption has doubled. From 2018 onwards, married individuals filing together will have an increased standard deduction of $22 million. Individuals filing separately can shield up to $11 million. This exemption is said to lapse after 2025.
Other Changes
Those who buy a house in 2018 will only be allowed a deduction interest up to $750,000 in mortgage debt. This was $ 1 million previously.
Child tax credit increased from $1,000 to $2,000. There is also a new, non-refundable $500 credit for non-child dependents, which was not there previously.
These tax changes are complicated and difficult to remember. Well, don’t worry and contact us. We can help you with all Ohio Department of Revenue and federal IRS taxation matters.