President Donald Trump passed a tax law late last year known as the “Tax Cut and Jobs Act.” Lauded as the “Trump Tax Reform,” it is the biggest overhaul concerning US tax code in the last three decades. It covers plenty of key points which includes personal tax, estate tax, and business tax.
But how does this change the life of a taxpayer?
There are a few key points worth mentioning in regards to personal tax. One is that individual State and Local Tax deductions will be gone. Individuals could only deduct a maximum of $10,000 on the combined local and state property taxes and either their income or sales taxes from their federal taxes.
The current seven taxes are pretty much the same, but there is generally a decrease in individual tax rates with the highest income earners getting the most benefit of all and the lowest income earners virtually paying more in the subsequent years.
Nevertheless, the individual rates will expire in 2025.
As with the individual tax, the revised estate tax policy will only take effect from 2018 to 2025.
Essentially, there is an increase in the estate tax exemption. For single filers, the new tax exemption will be doubled from $5.6 million to $11.2 million. Married couples will have it doubled with $22.4 million, as it is an accumulation of both tax exemptions.
Perhaps the most talked about section of the “Trump’s Tax Reform” is about the business tax due to its treatment to smaller or pass-through businesses. The highest tax rate is currently at a range of 35% to 45% and these falls on these pass-through entities that include sole proprietorships, S corporations, and partnerships.
Meanwhile, the larger corporations will benefit more on the lowest tax rate.
As a taxpayer, you will either be negative or positively impacted by the new tax reform depending on which bracket you are in. The higher middle-class to high-class households will get the most benefit. The wealthy will be wealthier.
Meanwhile, the middle-class to the low-class families who are earning the minimum wage will be negatively impacted, especially throughout the years. They will be in more trouble if they live in high tax states such as California or New Jersey. The standard deduction will be so large that in the end, it won’t be able to benefit them.
When it comes to businesses, the end result will likely see a massive migration of these pass-through entities to C corporations as their only choice. When that time comes, the administration will have to re-do the policy as they will have a lower tax collection due to this migration.
In the end, the new tax reform will only benefit the rich and the big companies. On the other hand, the minimum wage owners and the small businesses that give jobs to the majority of jobs to America will be earning less and working more.