In case you haven’t heard, President Trump proposed his new tax plan on April 26th, 2017.
It sounds like the real losers with plan are accountants.
Because the new tax plan simplifies the old one.
Most tax deductions for individuals are going away.
I know that sounds like a bad thing but it’s not.
Let’s dig a little deeper into the changes.
Fewer Income Tax Brackets
President Trump’s new tax plan will have 3 income tax brackets instead of 7.
10%, 25% and 35% will be the new tax rates but the income thresholds haven’t been released yet.
The current tax plan has tax rates of 10%, 15%, 25%, 28%, 33%, 35% and 39.6%.
That’s a major difference.
I don’t know how this will truly impact you or me yet because we don’t have the income brackets.
But as you can see, tax brackets will be simpler with the new plan and the highest tax bracket will drop 4.6%.
Higher Standard Deduction
Under the current tax structure, single individuals can take a standard deduction of $6,300.
If you are married and filing jointly, that number goes to $12,600.
President Trump’s new tax plan would double those amounts to $12,600 for singles and $25,200 for married couples filing jointly.
This is a big increase.
If you take the standard deduction now, you will double your tax deduction next year.
That sounds good to me. I always like doubling my money.
Maybe I won’t have to make as many trips to Goodwill next year.
Lower Capital Gains Tax
Capital gains tax is a tax on gains made from the sale of long-term assets.
For example, if you owned Amazon stock for 5 years and then sold it, you would pay capital gains tax on your profit.
The new tax plan reduces capital gains tax from 23.8% to 20%.
President Trump wants to encourage people to invest.
This tax battle has always interested me.
Republicans always want to lower it and democrats always want to raise it.
It’s all a political battle for votes to get re-elected.
If they just left it alone, investors would know the rules and be able to play by the rules.
Now if capital gains tax is too high, investors won’t sell and will just wait until the rate is lowered again.
The rate should be left at 20% and politicians should focus their energy on solving productive problems.
Not changing what the last political party did.
Bye Bye Inheritance Tax
It’s also called the death tax.
When someone leaves you money when they die, the government sees fit to tax it again.
So the person who died paid taxes when they made the money and taxes when they gave the money.
I’m pretty sure we started a war with Britain over stuff like this.
It won’t come to war this time.
President Trump is proposing to eliminate the tax altogether.
It’s a complicated tax bracket system but it could mean eliminating the 40% tax bracket.
Most Deductions Go Away But 2 Remain
Because of these other changes, most other deductions go away.
But mortgage and charitable deductions will stay.
These may not even be necessary with the new standard deduction.
With the new plan, you wouldn’t be able to deduct state and local taxes.
It also looks like the education deduction will go away.
Corporate Tax Rate Drops Dramatically
This one is really interesting.
President Trump is proposing to drop the corporate tax rate from 35% to 15%.
That’s a huge drop.
The intent is for corporations to use that money and create jobs.
And bring money back to the United States from overseas.
We’ll see if that works.
It is projected to reduce tax revenue to the Federal Government by $2 trillion dollars of the next 10 years.
I hope congress knows how to reduce their spending…
This a lot to take in.
I’m not sure anyone can really know the ramifications of all these changes.
It seems like the ready, fire then aim approach.
But hey at least you and I get to keep more of the money we work so hard for.
What are your thoughts on the new tax plan?
Let me know how it went in the comments below.
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