Trump’s highly-debated tax plan finally passed on December 19, 2017. An equal amount of rage and cheering instantly began across most American media outlets, each spinning their own unique idea of what it meant for the average citizen. Some thought the tax plan would hurt low-income Americans, while others felt it would even out the middle-class. The truth, as it usually is, remains somewhere in the center. To help you understand the reality of the situation, we put together these quick facts.
Tax Plan Facts
• First and foremost, the bill has yet to be officially signed by Trump. The President is expected to sign the bill over Christmas or in the first weeks of January. Until then, most official changes remain on hold.
• Before it can move forward, Congress must agree to nix the contentious Pay-Go budget rule that currently demands reductions to Medicare if tax cuts raise the deficit.
• Trump’s tax plan will slash taxes for both individuals and corporations over the next year. Corporate taxes will drop from 35 percent to 21 percent. Individual taxes will drop by a varying amount depending on bracket while also doubling the standard deduction. Only the corporate changes remain permanent; individual changes will end in or around 2025.
• Trump’s new plan also solidifies seven new tax brackets for individual Americans, lowering the demanded tax for each of those brackets. Here’s what that looks like:10%: Single (less than $9,525) or married (less than $19,050)
• 12%: Single ($9,525 to $38,700) or married ($19,050 to $77,400)
• 22%: Single ($38,700 to $82,500) or married ($77,400 to $165,000)
• 24%: Single ($82,500 to $157,500) or married ($165,000 to $315,000)
• 32%: Single ($157,500 to $200,000) or married ($315,000 to $400,000)
• 35%: Single ($200,000 to $500,000) or married ($400,000-$600,000)
• 37%: Single ($500,000+) or married ($600,000+)
• Trump’s tax bill also removes itemized deductions, alimony deductions (payer only), interest on home equity lines of credit, and personal exemptions.
• Deductions for student loans were preserved. If you have loans, you’re safe for now until at least 2025.
• The new bill nearly doubles the individual standard deduction to $12,000. Joint filers now have the option to deduct between $12,700 and $24,000. The Trump administration believes this will significantly lessen how often people take advantage of the mortgage deduction, which has been lowered to the first $750,000 of the loan. You can no longer claim interest on home equity lines of credit at all.
• Medical expense deductions have been greatly expanded to any payment over 7.5 percent of married or single income. Taxpayers can also choose to deduct up to $10,000 from property, income, or sales taxes (choose only one).
• The tax on people who do not have health insurance, originally instated under Obamacare, is fully repealed under Trump’s new tax bill. If you can’t afford to keep insurance, or you prefer to pay out of pocket, you will not be penalized. This benefits around 13 billion Americans, who will likely drop their plans, and the government, who saves $338 billion by not subsidizing these people.
• Health care costs will likely rise as a result of the tax bill, but naysayers did succeed in getting Trump to protect subsidies for extremely low income Americans. The changes are expected to prevent many Americans from accessing preventative care, potentially increasing Medicare costs in spite of cutbacks.
• If you use the Estate Tax exemption, expect it to rise to $11.2 million for singles and $22.4 million for couples. The Alternative Minimum Tax is also staying, increasing for individuals from $54,300 to $70,300 and from $84,500 to $109,400 for married or joint families.
• Have children? Here’s good news: the Child Tax Credit is rising from $1,000 to $2,000 – $1,400 of which can be in the form of a refund. If you’re married, you can now expect to access that credit until you make over $400,000.
• Trump’s plan will also allow parents to invest in special 529 savings plans, providing a money pot for private and religious K-12 schooling or private tuition. This amount also applies to parents who homeschool and/or utilize community homeschooling resources.
• Have a non-child dependent? Good news: you can now access up to $500 in credits for dependents. This includes elderly relatives and the infirm or disabled.
• Running a pass-through business? Your standard deduction is rising to 20 percent. This deduction remains available until you make $157,500 for singles and $315,000 for married couples. If you’re freelancing or running a sole proprietorship, this applies to you!
• If you’re running a business, you can now fully deduct depreciable assets rather than spreading them out over several years through amortization. However, this new rule only applies to items purchased between September 27, 2017, and January 1, 2023.
• Business driving you crazy? This might lighten your mood: Trump’s tax bill cuts taxes on beer, wine, and liquor. Unfortunately, many experts believe this will make alcohol more accessible, and thus, increase alcohol-related accidental deaths.
• The Corporate AMT is also being eliminated. This rule instituted an automatic 20 percent tax rate if deductions reduced a business’s tax rate below 20 percent. This change will mostly benefit big business. Unfortunately, the individual AMT, which does mostly the same thing, remains.
• To sum up the changes, businesses (including small businesses and sole proprietorships) are likely to see the most immediate benefit from this tax bill and the changes it brings. Individuals, married couples, and parents aren’t likely to benefit substantially at all. As for the deficit, it will increase by $448 billion over 10 years. Despite these scary-sounding numbers, most experts agree that the plan will spur on economic growth between 1.9 and 2.9 percent per year over the same time frame.
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What do you think of the new tax plan?