President Trump’s proposed tax plan, which was announced in April and called the “the biggest tax cut” ever by the U.S. National Economic Council Director, would take our country from having one of the highest corporate taxes in the developed world to one of the lowest. Here we lay out some changes focused specifically towards small businesses and individuals. For a full description of the tax reform plan, refer to this article. So, what exactly does Trump have in mind?
Proposed tax reform changes for Businesses:
- Lowering the maximum corporate tax rate from 35% to 20%
- Pass-through entity owners’ income tax rates would drop to 25%, as opposed to being taxed at the personal income rate
Proposed tax reform changes for Individuals:
- Standard deduction would almost double ($12,000 for individuals and $24,000 for joint tax filers)
- Decreasing the seven tax brackets down to three (estimated income levels):
- 12%: individuals making $0 – $37,950
- 25%: individuals making $37,950 – $191,650
- 35%: individuals making $191,650 +
- Closing loopholes for itemized tax deductions (except for donations to nonprofit organizations and mortgage payments)
- Eliminating personal exemptions
How could this tax reform affect you?
The Tax Policy Center has estimated that the lowest 80% of income earners would get a 0.2% to 0.5% increase in after-tax income. However, the tax reform plan helps the wealthy far more than other taxpayers. Once all the deductions and exemptions are factored in, the highest fifth of the population will receive an average tax break of 3%, while the top one percent would get an 8.7% break.
Not only will some people benefit more than others, a percentage of taxpayers will actually incur more taxes with the proposed tax reform. Moreover, Trump has stated other tax reform goals that aren’t directly expressed in published plans. With those added “goals” in mind, here are some factors that would qualify you to pay more taxes in the future:
- Itemized deductions averaging above $12,000 for individuals ($24,000 for married couples) through elimination of most of itemized deductions
- Elimination of the head of household filing status would likely cause a larger tax liability to those currently filing as this status
- Elimination of the personal exemption would bar families from taking an exemption for each qualified member
Trump has made it clear that he wants to slash taxes, but remember, this will not be the case for everyone. Since the proposal made in April, recent updates as well as press conferences suggest that rates and details are still being worked out and subject to change. Read this article to learn more.
Do you want to get a head start on next year’s taxes? Have tax-related questions? The experts at Paragon Accountants would love to help you, so please contact us today!
