How Will the New Tax Plan Affect You?
The U.S. House/Senate Conference Committee finalized work on the Tax Cuts and Jobs Act (the federal tax overhaul legislation’s official title) last week, and final votes in both the U.S. House and Senate are scheduled for early next week.
Passage is likely – although, unfortunately, it will largely be along party lines – at which point it will be sent to President Trump for his signature. Enactment should occur so that the majority of the bill’s provisions become effective January 1, 2018.
There is currently a lot of “chatter” about what this bill will do to Americans. Much of it can be filed under “spin” from each political party.
The bottom line – a majority of Americans will see a tax cut and will enjoy more money in their pockets as a result of the legislation’s enactment.
Which is great news! Having more money to do with as you please is never a bad thing.
Of course, not everyone will benefit. Those most likely to not see decreased taxes – individuals living in high tax states (sales and property taxes) such as New York, New Jersey, and California to name a few.
But, for the most part, a large portion of U.S. taxpayers will benefit.
Tax Plan Details
The Tax Foundation has put together a brief and easy to understand document highlighting the major provisions of the legislation. What is referenced in the document is what will become law. No changes are allowed to the bill at this point. The only way these provisions won’t be enacted as described is if the bill doesn’t pass at all.
Here’s a link to the Tax Foundation’s Overview.
And here are a few main points from the overview:
Individual income tax rates will be reduced. The specifics can be viewed in the screenshot below.
The standard deduction will be increased from $6,500 for single filers to $12,000. And for joint filers, the standard deduction increases from $13,000 to $24,000. Those filing Head of Household will see the standard deduction increase from $13,000 to $18,000.
What this means, is that for single filers, the first $12,000 is tax-free and for joint filers, the first $24,000 is tax-free. That’s a nice bit of savings right there.
The child tax credit increases from a partially refundable $1,000 to $2,000 ($1,400 of would be refundable) and a change to the tax code would include a provision allowing all dependents ineligible for the child tax credit to be eligible for a new $500 per-person family tax credit. This new provision is primarily focused on individuals having to care for elderly or infirm relatives. While not a lot dollar-wise, it’s nod toward where our society is headed…significant numbers of older individuals needing in-home care from family members.
The corporate tax rate is reduced from 35% to 21%. While this may seem like a significant cut in taxes for large corporations, the often unsaid reality is a bit different. When factoring in all the federal tax loopholes corporations are able to take advantage of, the “real” amount most large companies pay is in the 23% neighborhood. So it won’t be as big a tax cut for many businesses as it sounds.
The real reason behind the corporate tax rate reduction is that for many years, the United States has had the highest corporate tax rate among many of the developed nations around the world. This change is simply to bring U.S. corporate tax rates more into line with other countries and, hopefully, “equal the playing field.”
Whether this, and other changes to business taxes (all of which can be seen in the Tax Foundation document) will bring about stronger economic growth to the U.S. remains to be seen. That is the hope…and goal…but, only time will tell.
How Will Your Taxes Change
General provision can be discussed ad nauseam, but mostly what you want to know is how will the changes affect me! I know, that’s exactly the question I had. And then I found this Tax Plan Calculator.
Just input your tax-related information and you’ll see how the current provisions of the tax plan should affect you if the plan becomes law.
It’s a nice tool to get a general idea of what your tax burden might be next year, but I wouldn’t hold its results as the absolute, end-all, be-all number you should expect.
Check out the Tax Plan Calculator here.
Hopefully, you’ll see a lessening of your tax burden and an increase in your take-home pay.
And, with that excess money, you’ll make some good choices, like: paying down debt, putting some aside for that sure-to-come rainy day or adding a little extra to your retirement account.
And, of course, spending a little on something fun!
Let us know in the comments how the proposed tax plan changes will affect you, and what plans you might have for that unexpected windfall.
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