With all the talk about tax reform and income taxes just around the corner, most people want to know how Trump’s tax reform could affect them. While not all the information is available (like income brackets), there is enough to give taxpayers an idea of what they might face in the new year. Under the new system, if approved, taxes would be simplified, but some adjustments could mean lost or gained income, depending on your family situation and income bracket.
Taxes for Individuals
- The current system of seven tax brackets will be reduced to three, possible four brackets. The lowest bracket will face 12 percent taxes instead of 15 percent. The middle would go from 28 percent to 25 percent and the highest would go from 39.6 percent to 35 percent, with the possibility of a fourth bracket for the top one percent of earners.
- The standard deduction will almost double, going from $6,300 for single individuals to $12,000 and from $12,700 for married and joint filers to $24,000.
- Itemized deductions will be eliminated, with the exception of mortgage interest, retirement savings, and charitable contributions.
- Personal exemptions will be eliminated, so that the standard $4,050 deduction for each dependent will be no more, but the Child Tax Credit will increase.
- State and Local taxes will no longer be deductible.
Taxes for Businesses
- Corporate taxes will go from 35 percent to 20 percent.
- Businesses will be able to deduct the cost of depreciable assets rather than waiting for the depreciation deductions.
- The maximum tax rate for businesses will be lowered to 25 percent.
- Eliminates deductions for interest expenses.
- Businesses will not be taxed on income earned in foreign countries, but also won’t be able to deduct losses from dealings in foreign countries.
How would this new tax plan impact your financial situation?