Feb 1, 2019 3 min read

Guides for the new tax law This week, we will discuss changes for individuals under the tax law that was passed in December 2017. This is the first year we are filing under the new law, and many middle-class taxpayers will pay less in taxes. Most people are expected to use standardized deduction rather than itemized deductions. There are still seven tax brackets. The top bracket was lowered from 39.6 percent to 37 percent. Some income limits in the middle brackets were expanded to cover a higher income before moving to the next higher bracket. Remember, our tax system is progressive. That means if you end up in the 24 percent bracket, your marginal rate will be lower. Part of your income will be taxed at zero, 10, 12 and 22 percent. If you are married and filing jointly, with an adjusted gross income of $165,010, only $10 will be taxed at 24 percent. Because of the wider spread in brackets, there will be more room to bump the bracket with your qualified money. This is when you are retired and over at least age 59½: you could pull more money out of a qualified account without moving into a higher tax bracket. You might do this if you wanted to “detaxify” money you need to spend in retirement. The standard deduction was increased to $24,000 for a couple filing jointly. This is almost double the old amount. Personal exemptions were eliminated. This means a couple filing jointly will get about $4,000 more of tax-free income. There will still be extra credit for people over 65 or blind. Long-term capital gains rates are still available. These are to encourage investments. A couple filing a joint return will not have to pay a long-term capital gain tax if their combined income is under $77,200. To qualify as long term, you must have owned the investment for at least one year and one day. If you have owned it for a shorter time, it will be taxed as ordinary income, which is a higher rate. Because Obamacare was not repealed, the 3.8 percent net investment tax will remain for a couple with $250,000 of income. This includes capital gains, interest, dividends and rental income. Also, the 0.9 percent Medicare Hospital Insurance tax will remain on a couple earning the same amount. Many people do not know they can reduce their taxes when buying long-term care insurance. For a couple age 60 to 70, it is $4,160. The amount saved is less at younger ages. Many younger people do not take advantage of a great tax saving for younger people. This is by using a Health Savings Account, which is bought in conjunction with a high-deductible health insurance plan. A family may contribute up to $6,900 per year. This decreases current income taxes, grows tax-free and can be used tax-free for qualified medical expenses. You can carry the balance forward each year. You can no longer contribute once you are on Medicare, but you can still use your account balance for medical or insurance expenses. Be proactive with your tax planning. Have a plan to pay the lowest amount of taxes that you are legally required. Work with an adviser who understands how to help you accomplish this task. Gary Boatman is a Monessen-based certified financial planner.