Many people ask what is the deduction for people over 65. The new law says if you’re 65 or older, you may increase your standard deduction by $1550, if you file single or head of household. If you are married filing jointly and you or your spouse is 65 or older, you may increase your standard deduction by $1200.
The tax rate for Lottery winners is 39.6% which is the highest individual Tax Rate.
What 2018 Tax Reforms mean for investors:
Tax reform presents changes for investors, while also preserving several areas some thought would change.
529s (College Fund) gets more useful while 401(k) plans and Capital Gains remain mostly unchanged.
Business owners might want to change their form of business to take advantage of tax breaks for pass-through entities. If you’re eligible for a pass-through deduction, 20% of taxable income gets taken off the table for tax collection purposes. This means if you’re in the new highest 37% tax rate for 2019, this rule lowers your effective tax rate to 29.6%. This new rule will affect many business owners who receive –pass-through income including professionals like doctors, lawyers and some financial advisors.
For individual taxpayers, the top rate is lowered from 39.6% to 37%.
Limits raise from Estate and Gift Taxes. The new Federal Estate tax exclusion raises from $11 million to $22 million for couples.
Expansion of the 529 Education Savings Accounts makes them even more useful. Since 2001, 529’s could only be used for post secondary education expenses. Now for the first time, these accounts can be used for all eligible K-12, undergraduate, and graduate schools (up to $10,000 per year per student for K-12 tuition.) 529’s are more exciting than before. Contribution limits remain the same, allowing for contribution limits in 2018 of $15,000 for single taxpayers and $30,000 for those married filing jointly. Some taxpayers might consider making five years of contributions ahead of time, amounting to $75,000 for individuals or $150,000 for couples. Technology and Internet access are now qualified expenses. 529 can now be used for K-12, undergraduate, graduate, community college and trade schools, as well as older folks who want to go back to college in retirement.
Taxpayers State and Local Income Tax Deduction is capped at $10,000. The standard deduction is doubled and this will help with taxable amounts
The end result is that fewer people will itemize. It’s possible that only 3% will itemize this year compared to 30% in 2017.
What didn’t change in 2018!
Tax rates on dividends and capital gains remain unchanged. For capital gains and qualified dividends, that means a maximum tax rate of 15% for taxpayers in the lower tax brackets. For those in the higher brackets, the rate will be 23.8%.
Tax Benefits to Retirement Accounts, such as 401(k)’s and IRA’s stand. The tax benefits of tax-deferred retirement accounts stay in place. Retirement accounts remain attractive options looking to save for retirement.
