As promised in our first post about tax reform, we begin by examining the timeline of changes established by the tax reform bill. Taxpayers will notice most changes in 2019, as the legislation only fully affects taxes beginning this year. However, a few provisions are already in place or do apply to 2017: smart consumers can plan around these immediately.
Congress changed individual income tax rates across the board. A full comparison can be seen herein a Heritage Foundation report. Almost every income bracket sees a reduced tax rate, usually by a couple of percentage points, and Americans should already be noticing a change in their take-home pay. It is key to pay attention to this change as the IRS tries to adjust—confirm that your employer withholds the correct amount, so you do not find yourself owing taxes for 2019. These individual tax rates will expire in 2025 unless Congress chooses to extend them.
One significant change that may affect 2018 returns is a larger medical expense deduction. For those who itemize their deductions, certain medical expenses that exceeded 7.5% of their adjusted gross income in 2017 can be written off. This deduction previously triggered at 10% and will return to 10% after tax years 2017 and 2018. This is one of the few changes that you may be able to utilize right now.
After the change to individual tax rates takes effect, there is a pause until early 2019. Businesses will spend the year deciding if they should restructure to take advantage of the new pass-through deduction (which we will cover soon) but the next big step for most taxpayers is January 2019, when the Obamacare mandate is repealed. At that point, all parts of the tax overhaul will be in full effect until 2025.