Tax Rates Affected by New Tax Law
By Amanda L. Richter, CPA
Rate changes for individuals. Individuals are subject to income tax on “ordinary income,” such as compensation, and most retirement and interest income, at increasing rates that apply to different ranges of income depending on their filing status (single; married filing jointly; married filing separately; and head of household). Currently for the 2017 tax year, those rates are 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%.
Effective January 1, 2018, and continuing through 2025, there will continue to be seven tax brackets for individuals, but their percentage rates will change to: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
Bottom line. While these changes will lower rates at many income levels, determining the overall impact on any particular individual or family will depend on a variety of other changes made by the TCJA, including increases in the standard deduction, loss of personal and dependency exemptions, a dollar limit on itemized deductions for state and local taxes, and changes to the child tax credit and the taxation of a child’s unearned income, known as the Kiddie Tax.
Capital gain rates. Three tax brackets currently apply to net capital gains, including certain kinds of dividends, of individuals and other noncorporate taxpayers: 0% for net capital gain that would be taxed at the 10% or 15% rate if it were ordinary income; 15% for gain that would be taxed above 15% and below 39.6% if it were ordinary income, or 20% for gain that would be taxed at the 39.6% ordinary income rate.
The TCJA, generally, keeps the existing rates and breakpoints on net capital gains and qualified dividends. For 2018, the 15% breakpoint is: $77,200 for joint returns (half this amount for married taxpayers filing separately), $51,700 for heads of household, and $38,600 for other unmarried individuals. The 20% breakpoint is $479,000 for joint returns (half this amount for married taxpayers filing separately), $452,400 for heads of household, and $425,800 for any other individual (other than an estate or trust).
It is important to note that these new individual income tax rates are effective for your 2018 tax return and will not affect your tax on the return you will soon file for 2017. However, they will almost immediately affect the amount of your wage withholding and the amount, if any, of estimated tax that you may need to pay.
Corporate income tax rate drops. C corporations currently are subject to graduated tax rates of 15% for taxable income up to $50,000, 25% (over $50,000 to $75,000), 34% (over $75,000 to $10,000,000), and 35% (over $10,000,000). Beginning January 1, 2018, the TCJA makes the corporate tax rate a flat 21%. It also eliminates the corporate alternative minimum tax.
I hope this information provides helpful insight on the changes to individual and corporate tax rates. For more details, please see the Hook Law Center Memorandum on our website at Tax Cuts 2017. If you wish to discuss how these changes or any of the other many changes in the TCJA could affect your particular tax situation, please call our office at 757-399-7506.
Ask Kit Kat – Pets from Puerto Rico
Hook Law Center: Kit Kat, what can you tell us about the pets who were left stranded in Puerto Rico after the hurricane?
Kit Kat: Well, this is a heart-warming story in which a group from Virginia came to the rescue. It was several months in the making. Mirah Horowtiz, a lawyer and animal lover from Arlington, VA, who runs Lucky Dog Animal Rescue, spearheaded the effort. Southwest Airlines is also to be commended, because they donated the entire flight with volunteer pilots and flight attendants free of charge. It took a while for the emergency rescue of people to subside and Southwest’s schedule to clear, but eventually Southwest gave her the date of Jan.20, leaving from Baltimore-Washington International Airport. The Boeing 737 left Baltimore filled with supplies such as pet food, Clorox, wipes, trash bags, and diapers. The return flight was filled with 120 stray cats and stray dogs (satos in Spanish). Hundreds of animals became strays during the hurricane, as their owners sought shelter and did not have time to make arrangements for their pets.
The flight back to the United States was such a happy one! The entire crew was so dedicated to their mission. Flight attendant Janice Goravica volunteered to assist on the flight with the specific intention of looking for a new dog. Her previous pet, a black lab named Duke, died 4 years ago. Only now did she feel ready to bond with a new pet. She chose another black lab named Coscu. Once they landed, there was a crowd waiting to meet the furry group. Most were adopted on the spot. If you are interested in adopting one of the pets from Puerto Rico who still need homes, you can go to the Lucky Dog website. As Sonia Collazo, a lady from Puerto Rico who came to Virginia 10 years ago said, ‘You cannot forget the dogs. When you forget the dogs, you forget what a good life means.’
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