As 2018 comes to a close and we look ahead to 2019, one looming question is how the new tax plan will affect people, businesses and the economy as a whole. In late 2017, Congress passed a massive tax overhaul to take effect for 2018 taxes. While experts try to figure out how exactly the new Trump tax plan will affect the larger economy, it’s clear that the new tax plan will affect different populations in different ways.
Change often brings uncertainty and the new tax law has left many Americans wondering about the looming April 2019 tax deadline. The good news is that the new Trump tax plan looks like it will benefit many retirees.
Four Benefits of The New Tax Plan For Retirees
Most experts agree that many retirees will benefit from the new tax law. Trump’s new tax plan includes a higher standard deduction, lower income tax rates and an increased deduction for medical expenses while keeping previous laws that have been beneficial for retirees.
Higher Standard Deduction
For retirees, the most important change is the higher standard deduction. The new tax plan doubles the standard deduction. Because most senior taxpayers don’t have a mortgage or have moved to
Increased Deduction For Medical Expenses
Healthcare is a big expense for retirees, and for seniors whose deductible expenses exceed the increased standard deduction and itemize, taxpayers will be able to claim more qualified medical expenses than previous years. The new tax plan keeps the deduction rules for medical expenses but lowers the income threshold for these expenses from 10 percent to 7.5 percent. According to the new tax plan, this is only for the 2018 tax year and the threshold will revert to 10 percent in 2019the unless Congress acts to
Lower Income Tax Rates
Social Security income is an important source of income for many retirees and a portion of this kind of income is taxable. The new tax plan has lowered most of the marginal income tax rates so that more income is included in the lower tax brackets, resulting in lower taxable income for seniors. The new tax plan did not change the amount of Social Security included in taxable income.
IRA Charitable Distribution As Law
Retirees over the age of 70 and a half, must take minimum withdrawals from their retirement plan, like a 401k an IRA account. The new tax law did not change the existing rule that allows taxpayers to use pretax dollars ($100,000 annual limit) in an IRA to make donations to a qualified charity. This IRA charitable distribution was temporary but has been included in the new tax law, making it permanent.