Business

High-income earners to benefit from new tax law

By Herald-Whig
Posted: Feb. 13, 2018 8:55 am

QUINCY -- High-income earners stand to benefit significantly from the Tax Cuts and Jobs Act, even with some new measures that will reduce the possibilities for deductions.

The Tax Foundation said the rate of the top bracket -- earners who make more than $600,000 -- will drop by more than 2 percent. Most other brackets will see decreases in tax rates under the new law as well.

"High-income earners are going to come out better for the most part," said Linda Beers, Beers Tax Service tax preparer. "The reduction in the tax rates is the big thing."

Itemized deductions used to phase out once an earner met a certain annual amount. Under the new law, that cap has been eliminated. However, all miscellaneous itemized deductions will be eliminated under the new law. High income earners often have significant investments. Investment fees, which previously fell under the miscellaneous category, also will be eliminated. The deduction for state and local taxes (SALT), which includes income, sales, real estate and property taxes, will be capped at $10,000.

"We try to warn people that they need to check their withholding allowances," Beers said. "If you're used to getting these big itemized deductions, you're going to come up short at the end of the year."

The wealthy will benefit from an increase to the estate tax exclusion from $5.4 million to $11.2 million. The Illinois estate tax must still be considered.

"Let's say somebody made $300,000," Beers said. "Their Illinois income tax is going to be $14,000, almost $15,000. They're probably paying between $5,000 and $10,000 in real estate taxes. When that gets cut back to $10,000, it's going to make it harder for them to meet the standard deduction, which is going up to $24,000."

The interest on home equity loans -- loans in which the home is used as collateral -- will no longer be deductible. Only the interest on primary acquisition indebtedness -- the amount borrowed specifically to purchase a home -- will be deductible. That number also caps at $750,000. Any interest on the portion of loans exceeding the camp will not be deductible.

The deductions on charitable contributions will rise from 50 to 60 percent. While most taxpayers will be not able to give away such a large portion of their income, Beers said some of her clients do meet that mark.

"I have people who give $50,000, $60,000, or even $100,000 per year," she said. "For some of them that's 50 to 60 percent of their income."

Changes under the new law are highly variable, and each individual is different. Beers offered the example of a transportation worker who earns just over $100,000 per year and files individually. He will lose $18,000 in deductions and end up paying $2,500 more than he has in the past.

Conversely, Beers presented a married truck driver and health care worker who together earn $140,000 and will be gaining $11,000 in deductions, saving them $3,300 at tax time.

"Get a good accountant, an accountant that is staying current," Beers said. "When you get your taxes done, talk to your accountant about how this is going to affect you."

Beerstaxservice.com has a number of different tax calculators to help navigate the new tax laws.

Tax Brackets and Rates, 2018 (Courtesy the Tax Foundation)

Rate For Unmarried Individuals, Taxable Income Over For Married Individuals Filing Joint Returns, Taxable Income Over For Heads of Households, Taxable Income Over

10% $0 $0 $0

12% $9,525 $19,050 $13,600

22% $38,700 $77,400 $51,800

24% $82,500 $165,000 $82,500

32% $157,500 $315,000 $157,500

35% $200,000 $400,000 $200,000

37% $500,000 $600,000 $500,000

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