Changes in tax laws can significantly impact your personal finances. The Tax Cuts and Jobs Act (TCJA) of 2017 brought about many changes that affect individuals and businesses. It is necessary to understand how these changes impact your financial situation and adapt accordingly to ensure you are maximizing your savings and minimizing your tax liability.
Key Changes in Tax Reform
One of the most significant changes brought about by the TCJA was the increase in the standard deduction. For single filers, the standard deduction increased from $6,350 to $12,000, and for married couples filing jointly, it increased from $12,700 to $24,000. This change means that fewer people will need to itemize their deductions, simplifying the filing process and reducing the need for record-keeping.
Another significant change was the decrease in the corporate tax rate from 35% to 21%. This change was intended to encourage businesses to invest in their operations and create jobs. It is hoped that the reduced tax burden will result in increased economic growth and higher wages for workers.
One change that may impact families is the elimination of the personal exemption. Previously, taxpayers could claim a $4,050 exemption for themselves, their spouse, and each dependent. This exemption has been eliminated, but the increase in the standard deduction may offset some of the impact for families.
Adapting to Tax Reform
Adapting to changes in tax laws requires careful planning and attention to detail. Here are a few steps you can take to ensure you are maximizing your savings and minimizing your tax liability:
- Review your withholding. The IRS has updated its withholding tables to reflect the changes in tax laws. Review your paycheck to ensure that the correct amount of taxes is being withheld.
- Maximize your retirement contributions. Contributions to a traditional IRA or 401(k) reduce your taxable income, resulting in lower taxes.
- Consider itemizing deductions. While the increase in the standard deduction means that fewer people will need to itemize, it may still be beneficial for some taxpayers. If your itemized deductions exceed the standard deduction, you may be able to save money on your taxes.
- Consult with a tax professional. Tax laws can be complex, and it is easy to miss deductions or make mistakes. A tax professional can ensure that you are taking advantage of all available deductions and credits.
Changes in tax laws can have a significant impact on your personal finances. It is essential to understand how the changes brought about by the TCJA impact your financial situation and adapt accordingly. By following the steps outlined above and consulting with a tax professional, you can ensure that you are maximizing your savings and minimizing your tax liability.
