It has been widely reported that the Tax Cuts and Jobs Act of 2017 lowers federal income tax rates for many people. The highest tax rate, for example, has fallen from 39.6% to 37%. However, there are some quirks in the new tax rates, and some people will actually face higher rates. For example, an unmarried person who had $220,000 of taxable income in 2017 would have been in the 33% tax bracket. With that same income in 2018, this taxpayer will face a 35% tax rate. To find your new tax bracket, refer to the table below.
|Rate||Unmarried Individuals, Taxable Income Over||Married Filing Jointly, Taxable Income Over||Married Filing Separately, Taxable Income Over||Heads of Households, Taxable Income Over|
To complicate things further, the federal tax rates such as 24% or 35% are just one factor in determining the true rate you’ll pay by adding taxable income, or the true amount you’ll save with a tax deduction. Many people owe state or even local income tax, which might be fully or partially deductible on a federal tax return or not deductible at all. Various other provisions of the tax code will also impact your marginal tax rate – the percent you’ll owe or save by adding or reducing taxable income.
Knowing your true tax rate can help you make knowledgeable financial decisions. By starting with your 2017 tax return and incorporating your expectations as well as your plans for 2018, our office can help you determine the value of tax related actions.