Last year saw some major changes in tax laws, and everyone I talk to is still curious to see how it will all shake out a year later. With the beginning of tax season right around the corner, do you know how the Trump Tax Reform will impact your tax return?
Do you think you’re going to get a bigger refund, or will you owe?
Well, you don’t have to wait any longer! H&R Block is live and it’s free to start so dive in and start inputting your numbers to see how you stack up. It only takes a few minutes to get a sense of how tax reform is going to impact you!
Regardless of what tax reform is going to do for your taxes, most people can file their Federal and State return for free at H&R Block, our partner. Check out Free Online Tax Filing here.
If you do need a paid option, as a bonus for those who start early - you can get a 25% discount on H&R Block online right now.
The Big Tax Changes
There were a lot of changes to the tax code. The biggest change to the tax code is the tax brackets - the percentage of your income you pay in taxes.
In general, the rates are slightly lower than they have been in past years, and the brackets are slightly broader. However, there are a lot of other changes that make the simple percentage deceiving.
First, the personal and dependent standard exemption was eliminated, and essentially replaced with a bigger standard deduction.
Second, the child tax credit was increased to $2,000 per child and the income level where it phases out was more than doubled to $200,000 for individuals and $400,000 for married filing jointly.
Finally, for the side hustlers, there are big changes to how business income may be treated.
Check out this guide to better understand all the tax changes this year.
Who Is Going To Benefit?
It’s impossible to know exactly who is going to benefit and who is going to pay more - that’s why you need to get started and see for yourself. But let’s break down some scenarios of who might benefit under the new Tax Cuts & Jobs Act.
Note: these scenarios below only take into account Federal income tax impacts. Each state is different, and most will be impacted by this as well. However, mileage may vary on your state return!
Middle Income Family With Kids
A family of four (two adults, two children) making $150,000 combined living in California has the potential to save under the new tax law.
With the higher standard deduction of $24,000 for a family, as well as the higher child tax credits and a slight reduction in their tax bracket from 25% to 22%, this family might see a tax savings of around $3,829 compared to last year.
Low Income Household In The Midwest
A single parent with two kids living in the Midwest making $45,000 per year also has the potential to save under the new law.
With the new tax law, a much higher standard deduction and child tax credit is a big boost to this person’s tax return. Also, the tax rate drops from 15% to 12% this year, giving even more savings.
This family could see a savings of $2,053 in taxes versus last year.
If you think you might fall into a similar scenario, check out H&R Block here and see what you might save in taxes!
Who Is Going To Pay More In Taxes?
While some tax filers may save under the new law, there will be people who pay more as well. I strikes me that single millennials on the path to FIRE may be hit harder under the new law than expected.
Single Professor In The Midwest
The single professor in the Midwest that owns a home and makes $70,000 per year might pay more in taxes than before.
Given the changes to how unreimbursed business expenses are treated, professors will not be able to deduct those expenses. So, if this professor has $10,000 in unreimbursed research and travel expenses, he could face a higher tax bill.
And even those his tax bracket dropped from 25% to 22%, he will still likely pay $1,372 more in taxes this year (but he can still likely file his taxes for free at H&R Block).
High Income Millennial In New York
A high income millennial in New York making $500,000 per year and owning a condo will see a higher tax bill than previous years.
Given the limits on itemizing deductions, such as capping local and property taxes to just $10,000, this individual will see significantly less deductions than prior years. Furthermore, this person would jump into the 35% tax bracket, versus the 33% tax bracket last year.
As a result, this high earner will pay $6,396 more in taxes than last year.
Worried you might be paying more for your taxes? Get started with H&R Block for free and get an estimate of what your tax bill could be right now.
How You Can Get Started Now And Find Out
You might think it’s too early to see how your taxes will be - but I like to get started right now and see what the bottom line might shake out to. With H&R Block, you can already hop into your return and start seeing what your tax bill might be.
It’s also a good opportunity to see if any actions you take could reduce your tax bill. Maybe you can still contribute to an IRA, or max your your HSA, or open a solo 401k for your business.
Plus, if you get started with H&R Block now, you get a 25% discount! That’s a solid deal for those who start early!
So, how are you going to shake out? Are you going to owe more due to tax reform, or will you see a bigger refund?
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him here and here.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.