On December 22, 2017, President Donald Trump signed the Tax Cuts and Jobs Act into law. Most of the new provisions go into effect on 2018's taxes. So you will file your 2017 taxes with little or no changes.

The new tax plan cuts the corporate tax rate from 35 percent to 21 percent beginning in 2018. Additionally, the top individual tax rate will drop to 37 percent. The law overall cuts income tax rates, doubles the standard deduction, and eliminates personal exemptions. The corporate tax cuts are permanent but the new individual rates will expire at the end of 2025.

Personal Income Rates

How does this all affect you? Here's a breakdown based on a rough estimate of your annual salary. Employees will first see changes in their February 2018 withholdings.

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The Act keeps the same seven tax brackets for individuals. The 2017 rates will be reinstated in 2026 under this law. The new plan helps higher income families the most in terms of receiving the biggest tax cuts. The Tax Foundation has said that those in the 20 to 80 percent income range would receive a 1.7 percent increase in after-tax income. Meanwhile, people in the 95 to 99 percent range would receive a 2.2 percent increase.

Business Rates

The Act has more changes for business than it does for individuals. The new corporate tax rate at 21 percent is the lowest since 1939. The United States has one of the highest business tax rates in the world, but most corporations don't pay that much. The effective rate, when you take into account deductions and loopholes, is only around 18 percent.

The Act also raises the standard deduction for pass-through businesses to 20 percent. This deduction will also expire in 2026. A pass-through business includes sole proprietorships, partnerships, limited liability companies, and S corporations. This classification also includes real estate companies, hedge funds, and private equity funds. The deductions go away for service professionals when their income reaches $157,500 for singles and $315,000 for joint filers.

Another feature of the Act will allow companies to repatriate the $2.6 trillion they collectively hold in foreign cash stockpiles. They will pay a one-time tax rate of 15.5 percent on cash and 8 percent on equipment. Most famously, Apple holds $252 billion in foreign cash. This new tax rate will allow the company to bring it back to the US without a substantial tax hit. A similar “tax holiday" in 2004 provided little boost to the economy, according to the Congressional Research Service. The repatriated cash was distributed to shareholders over employees.

Changes To Deductions

The standard deduction for individuals has been doubled. Meaning, you can claim many more deductions that you could in the past. A single filer's deduction increased from $6,350 to $12,000. Married and joint-filer deductions increased from $12,700 to $24,000. These will also revert back to the 2017 level in 2026.

The Act also eliminates personal exemptions and most itemized deductions. This usually includes moving expenses, except for members of the military. Someone paying alimony can no longer deduct the payments, but those receiving them can. Deductions for charitable contributions, retirement savings, and student loan interest remain unchanged. But you can't take these as well as the standard deduction. The new law limits deductions on mortgage interest to the first $750,000 of the loan. Taxpayers can also deduct up to $10,000 in state and local taxes, but must choose between property taxes and income or sales taxes. The Act repeals the Obamacare tax for people without insurance in 2019.

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The Federal Reserve sets the guardrails for the federal funds rate, and through that helps control the money supply for the nation.

When you take out a loan for a car, charge something to your credit card, or get a personal line of credit, there is going to be an interest rate that applies to your loan.

A lot of different factors go into what you will be charged, including your own personal credit score. But even those with flawless credit still see a minimum charge that they can't get around. That all goes back to the Federal Funds Rate.

One thing consumers rarely realize is that all of our banks are lending money to each other every night. Banks are legally required to maintain a certain percentage of their deposits in non-interest-bearing accounts at the Federal Reserve to ensure they have enough money to cover any withdrawals that may unexpectedly come up. However, deposits can fluctuate and it's very common for some banks to exceed the requirement on certain days while some fall short. In cases like this, banks actually lend each other money to ensure they meet the minimum balance. It's a bit hard to imagine these multibillion-dollar financial institutions needing to borrow money to tide them over for a bit, but it happens every single night at the Federal Reserve. It's also a nice deal for those with balances above the reserve balance requirement to earn a bit of money with cash that would normally just be sitting there.

The Federal Reserve The Federal Reserve


The exact interest rate the banks will charge each other is a matter of negotiation between them, but the Federal Open Market Committee (FOMC) (the arm of the Federal Reserve that sets monetary policy) meets eight times a year to set a target rate. They evaluate a multitude of economic indicators including unemployment, inflation, and consumer confidence to decide the best rate to keep the country in business. The weighted average of all interest rates across these interbank loans is the effective federal funds rate.

This rate has a huge impact on the economy overall as well as your personal finances. The federal funds rate is essentially the cheapest money available to a bank and that feeds into all of the other loans they make. Banks will add a slight upcharge to the rate set by the Fed to determine what is the lowest interest that they will announce for their most creditworthy customers, also known as the prime rate. If you have a variable interest rate loan (very common with credit cards and some student loans), it's likely that the interest rate you pay is a set percentage on top of that prime rate that your lender is paying. That's why in times of low interest rates (it was set at 0% during the Great Recession), a lot of borrowers should go for fixed interest rate loans that won't increase. However, if the federal funds rate was relatively high (it went up to 20% in the early 1980's), a variable interest rate loan may be a better decision as you would be charged less interest should the rate drop without the need to refinance.

The federal funds rate also has a major impact on your investment portfolio. The stock market reacts very strongly to any changes in interest rates from the Federal Reserve, as a lower rate makes it cheaper for companies to borrow and reinvest while a higher rate may restrict capital and slow short-term growth. If you have a significant portion of your investments in equities, a small change in the federal funds rate can have a large impact on your net worth.

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