Does The Tax Bill Affect 2017? Here's What You Should Look Out For
The passage of Republicans' tax plan raises questions for many Americans about what to expect the next time they file. While parts of the reform will be in place before April, the GOP tax bill won't affect 2017 taxes. As you start thinking about your 2017 filing, there is one major change you should keep an eye out for in early 2018.
Although Ivanka Trump told Fox & Friends on Thursday she's "really looking forward to doing a lot of traveling in April when people realize the effect" of the tax bill, the only thing that will be different by then is the income tax. Income taxes in 2018 will be lower overall, a change that could go into effect as early as February (although implementation may be pushed back depending on when the president signs the bill into law). This means you'll likely receive slightly higher paychecks for much of 2018, but nothing else will be different when you file your taxes in April.
The tax rate for the lowest income tax bracket remains at 10 percent of a person's earnings, while most of the higher income brackets will see tax rates decrease by up to 3 percent for both single and joint filers. There are exceptions for those who will move up a tax bracket because the income levels of each were altered. For instance, if you make $250,000 a year, you'll move up a bracket and thus will see a slight increase in your income taxes.
Check out the below chart to see what will happen to your paycheck:
If you do receive a higher paycheck once the new income tax is in place, you'll have a little extra cash to go toward paying your 2017 taxes. So you could say the GOP plan will affect your 2017 filing in a small way.
However, you won't see the impact of the rest of the tax bill until the following year. When you file your 2018 taxes in 2019, the personal exemption will be replaced with a higher standard deduction. This difference will benefit single taxpayers with no kids, but decrease deductions for families. “Increasing the standard deduction and losing the personal exemption is a trade-off that might work for single filers with no kids,” Howard Gleckman, a senior fellow at the nonpartisan Tax Policy Center, told The Los Angeles Times. “It doesn’t work at all for a single filer with two kids — they’d be worse off.”
When filing 2018 taxes, Americans will see their taxes cut on average, with the wealthiest Americans receiving the largest cuts. It's important to note that the majority of changes made to the individual income tax are temporary and will expire in 2025, while the lower corporate tax will remain in place. Because of the expiration, more than half of American households will see their taxes rise by 2027 — with the exception of the richest income bracket, which will still pay lower taxes.
But, these changes are still pretty far out. When it comes to your 2017 taxes, Fortune's John Patrick Pullen recommends making any charitable donations before the end of the year. He explained why it won't benefit you to donate in 2018:
By using the new, bigger standard deductions, you’re agreeing not to itemize your returns, which means it’s not financially beneficial for you to give to charities in 2018. This is a point of contention for nonprofits and opponents of the bill. But there is one way to make sure both you and charities benefit (at least at the moment), and that’s by putting your 2018 contribution on your 2017 taxes instead.
Once your charitable donations are out of the way, filing your 2017 taxes shouldn't be any different than last year.