The Biggest US Tax Reform is Now a Reality – What Does This Mean for You and Your Business?
After months of discussions on the proposed tax plan by the Trump administration, the Senate finally approved a version that contains, even more, tax cuts for corporations and the wealthy. As stated in an article onFlipboard, there have been many concerns about the sustainability and cost of the newly accepted tax changes, but the majority of the Republicans are convinced the plan will generate a big economic growth and cover all costs.
As a US taxpayer what you really want to know is how the biggest US tax reform will affect you as an individual and business owner. We have the answer.
- Tax bracket changes – the number remains the same but the tax percentage will be different, meaning you may end up paying less taxes until 2026. (Source CNN Money)
— 10% (income up to $9,525 for individuals; up to $19,050 for married couples filing jointly)
— 12% (over $9,525 to $38,700; over $19,050 to $77,400 for couples)
— 22% (over $38,700 to $82,500; over $77,400 to $165,000 for couples)
— 24% (over $82,500 to $157,500; over $165,000 to $315,000 for couples)
— 32% (over $157,500 to $200,000; over $315,000 to $400,000 for couples)
— 35% (over $200,000 to $500,000; over $400,000 to $600,000 for couples)
— 37% (over $500,000; over $600,000 for couples)
- Increase in deductions – the allowance has doubled from $6,350 to $12,000 for individuals and from $12,700 to $24,000 for couples.
- No more personal exemptions – most affected would be families with 3 or more kids.
- State tax and local income tax deductions will be eliminated – you won’t be able to itemize these and you could include property tax deductions on your tax return of up to $10,000.
- Child tax credits are doubled – you could receive $2,000 instead of $1,000 for each child in child tax credits but that is only if you owe money in taxes. The maximum threshold for receiving the tax credits will now be lifted to $500,000 annual household income. The families on the lowest income, though, wouldn’t be able to benefit from the increase.
- There will be additional $500 per adult dependent in the form of tax credits.
- No changes to the mortgage interest rate deduction.
- The alternative minimum tax will stay the same.
- The estate tax will remain existent but will apply to an extremely limited number of people.
- If you are a teacher who buys their own supplies for the students you will be able to deduct $500 rather than $250.
- Medical expenses deductions are expanded – in 2017 and 2018 tax years you will be able to deduct medical expenses from your tax return if they are over 7.5% of your gross annual income.
- The individual mandate for health insurance is repealed in an attempt to offset the cost of the tax bill.
- Private school tuition fee deduction is created – parents who wish to send their children to private schools may deduct the tuition fees on their tax returns. The private religious schools are most likely to be subsidized. More about this change in the US tax reform is available inthis Huffington Post article.
- Many deductions are scrapped:
- Natural disaster losses
- Biking to work
- Moving expenses
- Tax preparation service fees
- Corporate tax is decreased to 20% from 35% – it will take effect in 2019.
- Immediate expensing made more generous – as a business entity, you could expense immediately any equipment you bought for the business for 5 years and phase it out by 20% every year after the initial 5.
- Pass-through organizations will benefit greatly – the tax rates are brought down by allowing owners to deduct 23% of their income rather than 17.4% as it currently is. Professional service providers as lawyers, accountants, and private practice doctors will not be able to benefit from this US tax reform change unless their annual taxable income is under $250,000.
- Some prevention of abusing the pass-through structures is introduced – partners will only be allowed to take half of the W-2 wages and tax them as ordinary income.
- Moving on to a territorial tax system – foreign earned income may not be taxed unless brought back to the US.
- Automation is encouraged by providing great deductions for specific business equipment – this could lead to replacing many workers without redundancy compensation.
- Drilling for oil and gas will be allowed in Alaska’s ANWR. More about this and other US tax reform changes read onThe Washington Post.
You are still not sure how the biggest US tax reform for years is going to affect you and your business? We are here to help. Email us at support@fascpaconsultants or call us to have a chat about your personal circumstances and what the Senate tax bill means for you.
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