Money Matters: The new tax law's effect on the average American - FOX34 Lubbock

Money Matters: The new tax law's effect on the average American

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This week marks the start of filing for your taxes. With the new tax reform introduced, you might be wondering how this affects this year's return. It doesn't.

Here's what you can expect from next year's tax season and avoid those surprises when the Republican tax overhaul hits.

President Trump promised a "big, beautiful Christmas present" in terms of a tax cut, but middle class Americans aren't exactly the main beneficiaries. However, it has its advantages.

First off, the previous tax brackets are out, and there's a lower rate.

"For 2018, you may already start seeing some increases in your paycheck, because the IRS issued withholding tables a couple of weeks ago based on the new law," CPA Mark Dickson said. "Depending on whether the employers have adopted them, or the payroll companies have already incorporated that into their software, you may already start to see some increase in your paycheck."

Next, it doubles that standard deduction. 

"For single people, your standard has gone from $6000 to $12000, and your standard deduction for married filing joint has gone up from $12000 to $24000," Dickson said.

That should lower the people that choose to itemize.

"Lets just say the average person in say the South Plains or Lubbock area maybe was itemizing say $15000, well now you're getting a $24000 standard amount, so you're no longer going to need to itemize. That standard amount has gone up by $9000, so you can definitely see where your taxable income has gone down."

But now, personal exemptions are now gone, including those for dependents.

"In the prior law, every dependent you had increased this standard amount by about $4000. If you had a family of four, say two kids, that's worth about $16000. They've done away with that," Dickson said. "What they've put into its place is child tax credits. So, you're going to get an amount, a tax credit depending on your income that's going to help offset that change."

You'll now get a $2000 tax credit for every child.

"Some people saw that as a negative change, but i think when you combine it, the higher standard amount, the tax credits and the lower tax rates, most people in this area are going to see a tax decrease because of that."

Texas benefits from the no state income tax.

"In the South Plains, we're going to be what we call the 'winners' of the tax law change because number one, we don't have a state income tax in Texas like they do say in California or New York. It may be that some areas see their taxes actually go up because they were able to deduct their state income tax, where they're going to be really limited on that now.

It's no secret that the one percent and businesses will see the most positivity from this new law.

"You could be a farmer, you could be a self-employed person like an electrician or a plumber, you could have a partnership or you could have an escorp where the income flows through to you, and there's going to be a new tax deduction of 20 percent."

Dickson said the vast majority of people are employed by small businesses as opposed to big businesses, so the tax law could be positive for some and negative for others.

"There's some tradeoffs. They were trying to make things simpler and so they did away with some things in order to achieve that, but they're also not wanting people's taxes to go up so they came back with the lower tax rate, the higher standard deduction and things like that."

Just remember, these individual changes will expire at the end of 2025, where the business law changed are permanent. 

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