March 2018 – As this year’s tax day approaches, many people will already be looking ahead to next year when the new tax law will be in effect. They’ll all be asking one simple question: “Will I have to pay more taxes?” Unfortunately, the answer is, “it depends.” There’s been a lot of speculation and confusion about the impacts of the most recent reform.
But here are three particularly important takeaways about the law to consider:
- The new law caps state and local tax (SALT) deductions at $10,000 and eliminates miscellaneous itemized deductions. This will negatively impact some high net worth taxpayers, but may be offset by the up-to 20 percent deduction on pass-through income and the lower top tax bracket of 37 percent.
- The capital gains tax rate is unchanged under the reformed tax code.
- Changes to how the alternative minimum tax (AMT) is calculated means more taxpayers avoid paying it. The exemption was increased to 30 percent but, moreover, the income threshold where the exemption begins to be phased out was raised six-fold to $1 million for married taxpayers. Taxpayers still get taxed the greater of the AMT or regular income tax.
With these insights in mind, let’s take a closer look at how the specifics of the tax reform will impact a few different types of taxpayers. All the individuals described are fictional, but they are representative of potentially real scenarios.