Tax Tip Tuesday I

May 22, 2018

Today is the beginning of our tax tip Tuesday’s.  For the next several months we discuss changes in the 2018 tax laws and how will affect you as an individual taxpayer.  In today’s overview, we will discuss the basics, the change in tax rates and the change in standard deductions.

But first, taxable income vs. gross income.  When many of us look at a tax table we see it from the perspective how much we earn (gross income) rather than taxable income.  Your taxable income is your gross income, less personal exemptions, and standard deductions. For example, if you are a married couple filing a joint return and your combined income is $100,000 and look at the tax table below, you may assume marginal tax rate is 22%.  Your actual taxable income would be $71,850 ($100,000 less personal exemptions of $4,150 and $24,000 in standard deductions), putting you in the 12% tax bracket. Under the previous rules, your taxable income would have been $82,000 and you would have fallen into the 25% tax bracket.

 

On the upper end of the tax rates, the highest rate of 39.6% was reduced to 37% and is accessed on couples with taxable income in excess of $600,000 rather than the lower taxable of $480,050.  A couple with taxable income of $500,000 will pay $175,000 in taxes, while under the old law their tax liability is $198,000, a savings of $23,000.

 

Below are the new tax rate table, the old tax rate table, and a table showing the change in standard deductions.  Next week we will discuss changes in income classifications.

 

New Rate Table

Marginal Tax Rate	Single	Married Filing Jointly	Head of Household	Married Filing Separately
10%	$0-$9,525	$0-$19,050	$0-$13,600	$0-$9,525
12%	$9,525-$38,700	$19,050-$77,400	$13,600-$51,800	$9,525-$38,700
22%	$38,700-$82,500	$77,400-$165,000	$51,800-$82,500	$38,700-$82,500
24%	$82,500-$157,500	$165,000-$315,000	$82,500-$157,500	$82,500-$157,500
32%	$157,500-$200,000	$315,000-$400,000	$157,500-$200,000	$157,500-$200,000
35%	$200,000-$500,000	$400,000-$600,000	$200,000-$500,000	$200,000-$300,000
37%	Over $500,000	Over $600,000	Over $500,000	Over $300,000

 

Previous Rate Table

 

Marginal Tax Rate	Single	Married Filing Jointly	Head of Household	Married Filing Separately
10%	$0-$9,525	$0-$19,050	$0-$13,600	$0-$9,525
15%	$9,525-$38,700	$19,050-$77,400	$13,600-$51,850	$9,525-$38,700
25%	$38,700-$93,700	$77,400-$156,150	$51,850-$133,850	$38,700-$78,075
28%	$93,700-$195,450	$156,150-$237,950	$133,850-$216,700	$78,075-$118,975
33%	$195,450-$424,950	$237,950-$424,950	$216,700-$424,950	$118,975-$212,475
35%	$424,950-$426,700	$424,950-$480,050	$424,950-$453,350	$212,475-$240,025
39.6%	Over $426,700	Over $480,050	Over $453,350	Over $240,025

 

Standard Deductions Comparison

 

Tax Filing Status	Previous Standard Deduction (Set to Take Effect in 2018)	New Standard Deduction
Single	$6,500	$12,000
Married Filing Jointly	$13,000	$24,000
Married Filing Separately	$6,500	$12,000
Head of household	$9,350	$18,000