Posted On - 10-09-2019 admin Tax Preparation
The Tax Cuts and Jobs Act has brought ground-level changes for the 2019 tax filing season. These changes are suspected to cause delays to start the filing season. However, internal reporting services have expressed optimism that the filing season will begin well in time. The newly introduced Form 1040 may look easy at first glance, but all the new schedules that are needed to look at to accompany the form will soon change your notion.
Here we are presenting an outline of key differences that Americans should know as these changes could affect the taxpayers in the upcoming 2019 tax season. You also need to note that the changes made on the corporate side won’t affect your tax return, but filing returns will, and that is why here, we will be discussing individual filers. The changes made are set to expire in the year 2025 unless they get extended.
The general lowering of US tax rates is one of the major changes made by the TCJ Act. Tax brackets still remain the same in number, however, rates have lowered with the exception of a minimum 10% tax rate for the poorest Americans.
Except for the minimum threshold, the income threshold of higher tax brackets has been increased. In short, now fewer, high-earning Americans will attract the higher tax bracket than it did previously. Let’s take an example to understand this- earlier a married couple earning a combined income of more than $480,500 and filing jointly, had to pay a 39.6% tax rate. Now, a married couple earning more than $600000, filing jointly, will come under the tax bracket of 37%. Therefore, the tax bracket has considerably changed as compared to earlier. The comparative table of the tax rates is as given below:
|Former Marginal Tax Rates (2017 and Prior Years)||Updated Marginal Tax Rates (2018 - 2025 Tax Years)|
Earlier, in the tax year 2018, that will apply to tax return in the year 2019, the 10% tax bracket included entities like- a single individual earning up to $9,525, a married couple who is filing their taxes jointly within earning of up to $19,050, the head of a household who’s earning is up to $13,600, and a married couple who decides to file taxes separately, and are earning up to $9,700. Now, the annual adjustment for all seven brackets have c
Now, we have an updated tax bracket, recently announced by IRS effective from the year 2019, for the year 2020, for all seven brackets. Let’s have a look.
|Marginal Tax Rate||Single||Married Filing Jointly||Head of Household||Married Filing Seperately|
|37%||Over $510,300||Over $612,350||Over $510,300||Over $306,175|
Before the tax year 2018, inflation adjustments of the standard deduction, tax brackets, and other tax provisions had been based on the Consumer Price Index (CPI) for all urban consumers. CPI tracks a bundle of goods and services that are directly consumed by U.S. households. Therefore, it makes a clear sense that it will increase all tax-related figures over the coming years.
Here one needs to note that due to the Chained CPI effect, which implies that consumers will not buy goods or services that have become too expensive over the particular time period. However, this effect goes comparatively slower than other forms of CPI, it’s effect doesn’t make big impact on a yearly basis, which directly affects lower-income taxpayers, as inflation rises faster than the CPI chain effect.