The proposed tax law changes will affect each of us differently depending on our individual circumstances says, William D King. Since you are more than just an average person, it is important to find some information that describes the provisions and explain what they mean to you. This piece of writing is aimed at giving a brief look at the proposed changes, how it can affect you and your family. (Blatner, 19)
Overview of the proposed changes:
There are seven major areas in which these potential Changes could affect you. They include; tax brackets, child care credits, standard deductions, itemized deductions, estate tax exemptions, pass-through business income deduction, and alternative minimum tax (AMT). (Blatner 22)
The first and the most important change that we might notice is the tax rates. It would be more beneficial to those with higher incomes. The new law comes with four newly created brackets; the income levels for each bracket are 10%, 12%, 22%, and 24%. Currently, there are seven tax brackets (10%, 15%, 25%, 28%, 33%, 35% and 39.6%). (Blatner 23)
Under current law, you can deduct up to $1000 of childcare expenses if you have a child under the age of 13. If your age was self-employed or had multiple children, then you can claim up to $3000 in deductions. The new changes will no longer allow low-income parents to deduct childcare expenses. This means that single or married parents, whether it’s you or your spouse, who make less than $200k per year won’t be allowed to claim any child care credits (Blatner 29).
Under these proposed changes, the standard deduction will significantly increase for everyone; individuals and families filing together will see their deductions rise from $12,700 to $24,000 in 2018. However, this number would gradually drop until it hit $22,000 in 2026. While this change is good news for most of us (especially those with larger families), It could also cause some conflicts within certain households; especially if one spouse makes more than the other. (Blatner 24)
There are several itemized deductions that the new law plans to cancel or restrict. The biggest change would be to limit the amount of state, local, and property taxes you can deduct from your federal return says, William D King. This proposal would make it harder for people who live in high-tax states like New York, California, or Illinois to write off these expenses on their federal returns. (Blatner 25)
Estate tax exemption:
Currently, estates worth less than $5.6 million are exempt from federal estate tax before being taxed at 40%. However, the new changes will increase this number to roughly $11 million dollars so only individuals with large estates will have to pay any federal tax when they die. (Blatner 26)
Pass through business income deduction:
As an owner of a business, you may be able to take advantage of the pass-through deduction. This provision will help you save more; if your taxable income is below $315,000 (jointly filed) or $157,500 for singles. Reducing your taxable number by up to 20% means that instead of paying 40 percent in federal taxes on your earnings, you would pay 29.6% in federal income tax to the IRS when things are finalized. (Blatner 30)
Alternative minimum tax (AMT):
This proposal will increase the number of people subject to AMT which was implemented over 50 years ago to make sure high-income households can’t take advantage of too many deductions and credits to avoid paying taxes. The new law would raise the minimum income level at which this tax will apply from $54,300 (single) or $84,500 (jointly filed) to nearly double that number explains William D King. However, for most middle-class Americans who make up to $120k (jointly filed), they won’t be affected by the AMT. (Blatner 27)
What does all of this really mean?
It’s pretty obvious; these changes will affect us one way or another. By looking at the proposed changes in terms of numbers, it is clear that those with higher incomes stand to gain more than those below them even though both sets of individuals would see their taxes lowered. It’s not to say that all middle-class earners will be worse off, but lower and middle-income families will need to be more watchful of how they spend their money because if their incomes change in the next few years it could cost them quite a lot in taxes.
This is without mentioning how these changes would affect small businesses and corporations since many people also work for smaller companies outside of big box stores like Walmart or Target. In terms of deductions, while some may be lucky enough to keep what they have now, others may lose out on what they’ve been receiving from the government up until this point which means less spending power for regular Americans says, William D King.
These are our thoughts on the proposed tax law changes which will affect us all, one way or another. While this is not to say that we must accept what’s been passed in Congress. It would benefit us to know how these changes can impact us. Since time is running out before they move into full effect. In closing, while some may see a bigger paycheck come next year others could be wondering why their money isn’t going as far as it did before and how they might be able to keep more of the money they earn.