The New Trump Tax Plan Benefits Corporate the Most
The new Trump tax plan was put into effect on December 22, 2017. These changes will be in effect from 2018, however, when you file your tax returns, the old 2017 rules will still apply. The tax returns you file in 2019 will be based on the new tax laws. Changes in the tax structure will be visible in your paychecks from February 2018, though.
Under the new tax plan, corporate taxes are going to be cut from 35% down to 21% from the beginning of 2018. Corporate tax cuts are permanent. Individual income taxes have also been cut. Standard deductions have doubled. And personal exemptions have been eliminated. These changes, however, are not permanent. They will be up for review in 2025.
What does the Trump Tax Plan mean for you?
The new tax bill went into effect on January 1, 2018 and will be applied to income earned hereon. All this is fine, but let’s break it down and see what it means for you personally.
1. Tax brackets have changed
While there are still 7 tax brackets, the tax rates have changed . Also, the long-term capital gains tax rates are unchanged, but the short-term capital gains will be taxed according to the new brackets.
The upshot of it is that the highest tax bracket has gone down from 39.6% to 37%. While the lowest income tax rate remains at 10%, the amount of income in that bracket has doubled.
2. The Standard Deduction has doubled
This is one of the biggest changes brought in by the new Trump tax plan. Previously, the standard deduction for a couple filing joint taxes was $13,000. This number has jumped up to $24,000. Singles who were filing their taxes has standard deductions of $6,500. This is been raised to $12,000.
This is good news for low-income families as it (along with the increase in child tax credit) decreases their tax liability.
3. Itemized deductions have either been reduced or eliminated
Since standard deductions have been doubled, the new Trump tax plan either eliminates or reduces other itemized deductions:
- Deductions on State and local taxes, property taxes and real estate taxes have been limited to $10,000.
- Mortgage interest deductions have been limited to %750,000 of debt.
- All miscellaneous itemized deductions have been removed.
- Medical and charity deductions remain untouched.
A high-income household living in a high-tax state with high property taxes and a mortgage could find that their income tax actually goes up. If, however, you don’t itemize your deductions, you will be benefitted from the increase in standard deductions.
4. Child Tax Credit has gone up
The Trump tax plan doubled child tax credit to $2,000 and increased the income level to which this credit is applicable. The credit is fully refundable up to $1,400 but phases out for couple with a joint income of $400,000 or more and singles with an income of $200,000 or more.
This change will benefit low- and mid- income households.
5. Personal exemption and dependent deduction have been removed
The bad news is that personal exemptions have been eliminated. However, low- and mid-income families won’t really be impacted by this change.
Large, high income families however will have $4,050 added to their tax bill, which is the amount that was allocated for personal exemption and dependent deduction in the previous tax law.
6. Alternative Minimum Tax (AMT) was altered
The Alternative Minimum Tax exemption as well as exemption phase-out amounts have been increased. The AMT exemption amount for married couples will now be $109,400 and will be $70,300 for others. The phase-out limit has been increased to $1 million for married couples and $500,000 for others.
The changes to this tax exemption will help mid- and high-income households, but will not really have an impact on the low-income families.
7. Tax-deferred retirement accounts are untouched
Remember, these factors don’t work in isolation. Income, credits, deductions and other aspects of the tax bill work together. If you are not sure about how the new Trump tax plan will impact you, now would be a good time to consult with an expert.