Trump’s Tax Cuts, like most tax reforms, are complex and confusing. For more details on the new tax code, continue with the article.
Trump’s Tax Cuts Explained
What Is the New Trump Tax Plan?
President Trump signed The Tax Cuts and Jobs Act of 2017 on December 22, 2017. This tax reform brought down both corporate and individual tax rates at the start of the calendar year of 2018. Corporate tax rates are down from 35% to 21% while individual tax rates dropped from 39.6% to 37%.
The Trump tax plan also doubles standard deductions among individual taxpayers. Under this tax provision, a single taxpayer’s deduction increases from $6,350 to $12,000. For married taxpayers, standard deductions increases from $12,700 to $24,000. It also eliminates personal and most of the itemized deductions.
How Does the New Tax Plan Affect Individual Taxpayers?
The lower tax rates for individual taxpayers means a higher amount in paychecks. However, this may not be the case in certain situations, especially for families with children. Since the personal exemptions are eliminated under this new tax law, families with many children may pay more taxes even if there is an increase in standard deductions. To maximize the tax benefits under the Trump tax reform, an individual will need more complex tax planning and preparation.
Who Gets Affected the Most with the Tax Reform?
Taxpayers from both sectors have immediately noticed changes in their taxes at the beginning of this year. Families with higher income are expected to receive a 2.2% increase in their income after taxes while lower-income families would expect a 0.4% increase, according to the Tax Foundation.
Businesses, on the other hand, get the most benefit from this new tax law since business tax cuts are now permanent. Aside from decreasing corporate tax rates, pass-through businesses can now enjoy 20% standard deductions.
When Will Trump’s Tax Cuts Bill Take Effect?
Most of the tax provisions of the Trump Tax Cuts took effect on January 1, 2018. This does not have any impact on the taxes filed for 2017. Employed individuals have noticed an increase in their paychecks as a result of this tax cut, but businesses won’t see any changes to their numbers until they prepare and file for 2019 tax returns.
Where in the U.S. Will This New Tax Bill’s Impact Be Most Felt?
Trump’s Tax Cuts will definitely affect both federal and local state taxes. While the new tax provisions may provide lower tax bills for most taxpayers, it certainly means huge dramatic tax changes for residents of high-tax states like California, New York, and New Jersey. These states have the biggest portion of higher-income taxpayers. The reduced state and local tax deduction make it harder for these individuals to itemize their deductions.
Why Is There a Need for Tax Reform and How Will It Improve the Economy?
Trump’s Tax Cuts has similarities with Reagan’s 1986 Tax Reform bringing people to question whether this will, in fact, improve today’s economy or not. Taxpayers also wonder whether it is beneficial for individual taxpayers more than businesses.
Trump’s tax plan’s primary aim is to simplify the tax code and make it fair and easy to understand among all taxpayers. It also gives U.S. workers the opportunity to receive a higher income. Additionally, the tax provision also encourages money to return from investments through both American businesses and offshoring throughout the world.
The impacts of the new tax law have just started to take effect on individuals and businesses. Only time will tell if Trump’s Tax Cuts will help boost the economy and bring the promised higher income to every taxpayer.
Do you think Trump’s Tax Cuts is beneficial to you or your business? Share your thoughts with us in the comments section below.