Are You Prepared for Big Tax Reform?
Listen. Can you hear it? Those are the winds of tax change. They’re coming from the nation’s capital and they are about to spread throughout the entire country. Taxes were one of the biggest issues throughout the presidential election cycle and President Trump made it very clear that he wanted to make some big changes to our country’s tax code if he was elected. Well, the time has come to make good on those promises, and the president has some big plans. Additionally, with both the Senate and the House being controlled by republicans it appears that the country’s tax code is about to get a huge makeover – ready or not.
How Will You Be Affected?
It has been decades since lawmakers have been able to make any big changes to the tax code but if the new proposals laid out by the president and his administration become law, there will be some major changes that will no doubt affect just about every taxpayer in the country, for better or for worse. So how will these proposed changes affect you? Here’s a closer look at the biggest changes that we could soon be seeing if the president’s changes become law.
- Fewer Tax Brackets – Perhaps the biggest change to the tax system in Trump’s plan is to reduce the number of tax brackets for individuals from seven to three – with the tax rates being 10 percent, 25 percent and 35 percent. However, the administration has not yet revealed the income levels of those brackets.
- Increase the Standard Deduction – As it stands right now, the standard deduction for married couples is $12,700 and $6,350 for individuals. Under the president’s plan the standard deduction would double for both groups. The hope is to leave more money for average taxpayers that don’t typically itemize their deductions.
- Decrease the Capital Gains Tax – The President also wants to cut the top federal capital gains rate to 20 percent from its current mark of 23.8 percent. This change will come from eliminating the 3.8 percent tax that is used to fund the Affordable Care Act. The administration hopes this will give taxpayers more incentives to invest.
- Repeal the Inheritance Tax – Under Trump’s plan the so-called “death tax” will die a quick death. Trump plans to repeal America’s inheritance tax, which, as of 2014, was the fourth highest in the world. This will only benefit the beneficiaries of those with very wealthy estates.
- Repeal of Alternative Minimum Tax – The alternative minimum tax (ATM) makes it more difficult for ultra rich taxpayers to wiggle around the tax system and ultimately pay less. Obviously, the wealthy don’t enjoy this tax code and the president is ready to kill it.
- Preserving Mortgages and Charitable Deductions – President Trump is also ready to cut all individual tax deductions except for two of the most popular: the mortgage interest deduction and the charitable giving deduction. However, these two deductions could actually end up being unnecessary for the majority of taxpayers if the president’s plan to raise the standard deduction also becomes law. On the downside, the plan calls for the elimination of state and local taxes being deductible, which could be a problem for anyone that lives in a state with a high state income tax rate.
- Cut the Corporate Rate – Last, but not least is the president’s plan to lower the corporate tax rate to 15 percent from its current rate of 35 percent. This is one of the most aggressive proposals in the plan but the administration claims this move would make the rate closer to other industrialized nations. The administration also wants to offer a special one-time tax that would be designed to encourage companies to bring money they make overseas back to the U.S.