What effects will tax bill have on Lodians?

Early in November, when the new tax bill proposal was being introduced, Rep. Kevin Brady (R-Houston) held up a postcard and declared “This is a complete redesign of the code, so we can simplify it so much that 9 out of 10 Americans can file using a postcard-style system.”

President Trump went on to say “It’s going to make life very simple. The only people that aren’t going to like this is H&R Block.” He later touted that Americans will be able to “file their taxes on a single, little beautiful sheet of paper.”

As it turns out, the folks at H&R Block still have job security and the paper companies won’t be shuttering their doors any time soon.

The tax bill passed along partisan lines within a timeframe that many people thought was implausible when it was first announced. Although simplification was one of the main goals, that talking point gave way to an emphasis on job creation as the legislation made its way through the House and Senate. Now that the new tax law has been passed, what does it mean for the average family living in Lodi?

In the final bill, one of the main simplifications is the doubling of the standard deduction to $12,000 for individuals and $24,000 for couples.

It is estimated that over half of the country will find these standard deductions are greater than those they would receive by tracking and itemizing deductions. Since some of the most common deductible expenses have to do with mortgage interest and property taxes, the increase in the standard deduction is especially valuable to people who have paid off or paid down their mortgage, who do not own a home, or whose home does not generate a large property tax bill.

It is important to note, although the standard deduction doubles, personal exemptions have been taken away. The net result appears that most tax filers will find a net benefit from the change, and not need to spend the time and energy itemizing deductions.

From a planning perspective, generally, you will want to push income into next year because of the lower tax rates. At the same time, you will want to increase your deductions this year due to the higher current tax rates.

In addition, many of the current deductions will be reduced or eliminated next year. If you give to charity on a regular basis, consider prepaying your 2018 charitable donations this year.

Other expenses that you may be able to increase by year-end include unreimbursed employee expenses, investment losses, pre-payment of property tax, and medical and dental expenses under certain circumstances.

For those who plan to continue itemizing deductions, consider paying down your home equity loan as soon as possible because the interest will not be deductible in 2018. Likewise, the amount of mortgage interest you can write off will be limited. Of course, be certain to ask your accountant or tax preparer about your individual situation.

Most people will find themselves in a lower income tax bracket. The United States uses a graduated income tax system. That is, taxable income is divided into brackets and subject to increasing tax rates for income falling into higher brackets.

Under the new law, the brackets have changed so many people will realize a dual-benefit. That is, their income will fall into lower brackets and the tax rates on those lower brackets have dropped. From a planning perspective, if you can delay taking income this year, you may be better off by doing so.

Big business, small business, individuals both rich and poor may see a reduction of the income tax they pay. The disagreement between the parties does not seem so focused on whether or not taxes will drop, but rather on the fairness of the tax law, what it might do to our national debt, and the impact of the elimination of the individual mandate to buy health insurance. Regardless of the controversies, it appears the changes might ultimately leave you and me with more money in our pockets.

Use the money to build an emergency fund, pay down debt, save for retirement, have some fun, donate to charity, or give to your family members. If you ask me, all of those are pretty good choices.