Changes You Can Expect From the Trump Tax Reform
Virtually every year, tax laws and guidelines change. While that is a given, even more change can be expected when a new administration takes over with a different political ideology from its predecessor. This can affect the way funds are collected and redistributed which, in turn, can affect what you will pay to the IRS or get back for a refund. Beginning in 2019, you may notice changes from trump tax reform enacted in 2017.
Impact on Average Taxpayers
The main takeaway from the new tax policies is that average taxpayers will likely only see minimal overall benefits regardless of the changes if any unless you are the top 1% of households who will likely see benefits within the next several years. With tax brackets redefined, if you compare your projected rates from even a year ago, you can see that not only is there an increased range for each bracket, but the percentages for each level have also been reduced. While this may seem like it may translate to higher gains, that is not necessarily the case. For example, since itemized deductions and personal exemptions are no longer applicable, any gains from tax bracket updates will be less noticeable when it boils down to the overall dollar amount. This may be similar to what small business will experience.
Another significant difference is the changes in deduction terms. Some of these include:
- Numerous miscellaneous deductions from previous tax year eliminated
- Itemized deductions only accepted for those living in disaster areas designated by the president, and for members of the armed forces
- All personal exemptions have been eliminated
- Standard deduction has almost doubled
- No more deductions or reporting of alimony
- Increase in child tax credit, and a new $500 credit for qualifying adult dependents
- Estate tax exemption doubled
- The threshold for medical expenses decreased to 7.5% from 10%
- Deductions for state and local taxes now capped at $10,000
Impact on Businesses
On the flip side, if you are the owner of a larger business, the new tax plan is likely in your favor. With political leanings traditionally in favor of businesses, it’s no surprise that the tax reform is good news for those who fall in this category. For example, the corporate alternative minimum tax will no longer apply, and instead of a sliding scale used in previous years, corporate tax income is now a flat rate of 21% compared to 35%.
Another Notable Change
Those with education accounts will see some changes. The new tax plan allows for more flexibility in some types of student loans. For example, the discharged student loan debt due to disability or death is will not be categorized and taxed as income anymore. Also, 529 plans can now cover educational expenses for primary school as well instead of just higher education.
Check for Yourself
To get a better understanding of what numbers to expect, there are a variety of resources that can help you to do that even before sitting down to officially calculate your taxes. Whether you are doing your taxes yourself or enlisting the help of an accounting professional, it can be helpful to get a few estimates before your final submission. Consider online calculators that factor in these new changes if you are tackling your taxes on your own. Or, before submitting to a professional, free-to-low cost accounting software can give you figures that you can use to cross-check with your accountant.