Donald Trump’s Proposed Revisions to the Tax Plan
With every new presidential administration comes proposed tweaks and revisions to the United States Tax Code. This is especially true when there is a dramatic shift of power. With President Trump’s ascension to the White House and a Republican majority in both the Senate and the House, the 2018 tax year promises to bring in some sweeping changes. Three of the biggest proposed changes are a restructuring of the existing tax brackets, elimination of key deductions, and a change to the filing status for millions of American citizens.
Tax Bracket Changes
There are currently seven tax brackets in the United States, with tax rates that range from 10 percent to 39.6 percent. One of President Trump’s key campaign pledges was the simplification of these brackets. A proposed change would reduce the number of brackets from seven to three. These brackets would be 12 percent, 25 percent, and 33 percent.
The proposed change would also create a new standard deduction for single and married couples filing jointly. Single taxpayers would see their standardized deduction increase from $6,300 to $15,000; married couples filing jointly would increase to $30,000 from $12,600. This would bring an across the board increase for the majority of middle-income taxpayers who would see the standard deduction exceed itemized deductions.
Eliminating Deductions and Exemptions
Among other proposed changes to the tax laws, the Trump Administration is in favor of eliminating personal exemptions. For families that make less than $311,300, that would eliminate $4,050 in exemptions for each member of their family. That could cause some families to see an increase in their taxes, despite the increase in the standard deduction.
State tax deductions would also be eliminated under Trump’s proposed plan. For taxpayers in states with higher income tax rates such as New York (8.82%) and California (13.3%), this could have a significant impact on their taxes.
A proposed change that Trump favors, but is unlikely to make it to paper, is the cap on deductions for the highest income tax bracket. That would cap deductions at $100,000 for single filers and $200,000 for married.
There’s also a very good chance that the Republican controlled legislature would be able to finally repeal estate taxes. These taxes only apply to a very narrow spectrum of inherited estates – it only affects those with more than $5.49 million in assets. Proponents of the repeal say that inherited wealth is reinvested; this reinvestment would foster growth by nearly 1 percent over the decade following the repeal.
In conjunction with the estate tax repeal is the elimination of the alternative minimum tax. The AMT targets the top earners in the country to prevent them from paying their fair share of taxes. However, as more and more Americans see their incomes rise, the AMT is beginning to affect them as well. However, with the AMT estimated to produce nearly $350 billion in tax revenue over the next 20 years, finding a substitute will make this repeal challenging.
Filing Status Changes
Another key change in the tax system would be the elimination of the Head of Household filing status. This is currently used by about 23 million single parents to increase their standard deduction. However, when applied in conjunction with the proposed increase in standard deductions, many would see their tax burden fall as well.
With all of the proposed changes, it’s difficult to estimate what future tax burdens will be for any American. Any proposal still needs to pass both the House and the Senate. In the past, changes to tax laws have been made retroactive, however, taking effect at the beginning of the tax year that the changes became law. Don’t let changes to tax law expose you to unnecessary risk for penalties.
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