What's in Trump's Tax Reform?(Individual)
Oct 12, 2017
The GOP’s framework for tax reform is big news right now, but most newscasters can’t seem to get the facts straight. So, here is a little round-up of the proposed changes affecting individual tax returns, but keep in mind these are proposals and not law until passed by Congress and signed by the president. Also, there is controversy around some of the proposed changes, so we can expect any tax reform legislation, if passed, to be different from the original framework described here.
Based on comments by administration insiders as well as the number of details that need to be worked out, even if passed, it is unlikely that the changes will apply retroactively to 2017.
The plan would only have three tax brackets: 12, 25 and 35 percent.
Standard Deductions and Exemptions
GOP proposes to simplify the tax law to combine the standard deduction and exemption. No additional deduction for 65 and over or blind. To understand how this would play out, let’s compare taking the standard deduction and exemption under the current regime to that of the proposed change for a variety of family combinations.
Current Regime Proposed Change
With No Dependents $10,400 $12,000
With 2 Dependents $18,500 $12,000
With No Dependents $20,800 $24,000
With 2 Dependents $28,900 $24,000
With 4 Dependents $37,000 $24,000
As you can see, the proposed change favors a smaller family size, but this is supposed to be compensated for with a larger and partially refundable child tax credit, as discussed below.
Medical deduction, state income tax deduction, and property tax deduction would be repealed under GOP proposal. Itemized deduction will be a limit to home mortgage interest and charitable contributions. This is not sitting well with states with income tax, especially those from CA, NJ, and NY – states with the highest state and local taxes.
Child Tax Credit
The CTC will be increased although it is unclear by exactly how much. CTC is supposed to be enhanced, so it's available to the middle-income family.
Work, Education, and Retirement Benefits
GOP plan to repeal of many of these provisions to make the system simpler.
AMT and Estate Tax
Both will be repealed if GOP has their way.
Will You Benefit From the Reform?
From the current proposal, families in the existing 10 percent bracket will be better off. However, right now, the GOP framework is so vague, it's hard to tell if middle-income class people will be better off and if so, how much better off. We will have to wait and see.
But keep in mind that these are only proposed changes, and there is no guarantee they will become law. If you have any questions, please give this office a call.
Circular 230:The articles are for general information only. In accordance with IRS Circular 230 they are not considered tax opinions for purposes of relying on such statements in any challenge of the reporting of the above transaction by the IRS. If a full tax opinion is required certain procedures must be met . Also there is a significant cost for a full tax opinion to meet the requirements of Circular 230.
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