Tax Reform

Tax Reform – Check Under The Hood

If there is one thing you can count on it is death and taxes.  In the world of taxation and tax reform, nothing is ever static.  Change is inevitable and big changes are on the horizon.

Unless you live in a cave in outer Mongolia, you are aware of the new tax code revisions being proposed by President Trump and ratified by congress.  No one really knows the full ramifications of this new tax code change, as it is still being hashed out by congress. However, in an effort to provide forward looking information, we offer these points of interest.

Tax Cuts, Tax Cuts & More Tax Cuts, What Does It Mean?tax reform

There is no question that tax rates will be coming down.  The real question is, “Will the decreases be distributed fairly across the board?”  The simple answer to that question is, No.  Of course nothing is set in stone as of yet and things are in a state of flux, but here’s what we know so far.  Check out this related article, “Tax Brakets Under Trump’s Tax Reform Plan” for a more detailed discussion on the upcoming rate changes.
The proposed tax plan includes a corporate tax rate cut of  almost 15%.– This means small business may have more of their profits at the end of the day, allowing for capital investment, workforce investment and other economy boosting activities.
Individual Top Tier Rates will drop to 37%– That probably isn’t as earth shaking as it sounds, given the fact that it equates to only a 2.6% reduction from the previous tax rate.
Lowest Tier Tax Payers Can Expect Reductions As Well.– Currently, those making less than $9,325 per year are paying only 10% on that income. While those making up to $37,950 per year are assessed a 12% Tax Rate. Under the proposed plan by the house and senate, these rates will change to 10% and 12% respectively. As you can see, the lowest tax tier rate remains unchanged. With the elimination of many exemptions and credits, this could have a potentially devastating effect on those who struggle just to bring home enough to live on. The slight decrease from 15% to 12% may not be enough to offset the loss of other child care and personal exemptions.

Big Changes For Personal Exemptions & Itemized Deductions

For years now, our spending habits and economic consumption has been structured largely around the tax implications of those expenditures. Well, now the whole game is changing. To start with, say goodbye to the personal exemption. While you reach for that hanky to wipe away the tears, we should let you know that many of the exemptions you have come to rely on are going away as well. Rather than present a list of what is going away, we’ll just say that they are all going away, with the exception of the following deductions.

  • – Charitable Contributions
  • – Mortgage Interest
  • – Property Taxes
  • – Retirement Savings
  • – Qualifying Medical Expenses

Finally, Relief From The Dreaded Obamacare Penalty tax

With the advent of Obamacare, many Americans have paid a heavy price for not having health insurance coverage.  Good News!  This proposed tax reform will repeal the tax on those who have been unable to obtain health insurance.  This will definitely come as a boost in the arm for many small business owners and self employed individuals across the country.  See, it’s not all bad news.

With the advent of Obamacare, many Americans have paid a heavy price for not having health insurance coverage.  Good News!  This proposed tax reform will repeal the tax on those who have been unable to obtain health insurance.  This will definitely come as a boost in the arm for many small business owners and self employed individuals across the country.  See, it’s not all bad news.

Changes To The Tax Credit Structure

Child Adoption Credit & 529 Savings PlansThere are big changes planned for those who have children and struggle to balance work and home. In the proposed tax plan, the child tax credit will increase from the current amount of $1,000 to $2,000. That’s welcome news to those with children. Both the senate and the house tax proposals will preserve the adoption tax credit, allowing parents to set aside funds for a planned adoption in a tax-advantaged account. In addition, parents can now use their 529 savings plans to send their children to private educational institutions as well as religious institutions of learning. The changes even allow home schooling families to use those funds for certain home school related expenses.
Caring For Your Disabled Loved Ones Just Got Easier– Both the Senate ($500 credit) and the House ($300 credit) tax reform plans include a “Non-child dependent” credit

Changes To Taxation of Foreign Entities

Both plans advocate a change from the current “worldwide” tax system to a “territorial” system. Under the current system, multinationals are taxed on income earned overseas. They don’t pay the tax until they bring the profits home. As a result, many corporations leave it parked overseas. Under the territorial system, they aren’t taxed on that foreign profit. They would be more likely to reinvest it in the United States. This will benefit pharmaceuticals and high tech companies the most.

In addition, the Senate plan imposes new taxes on foreign companies doing business in the United States. They must pay 10 percent on all payments to foreign parents or affiliates. The “border-based” tax system could trigger retaliatory taxes in other countries.( Source: The Balance, “Trump’s Tax Plan & How It Affects You”)

There is no doubt we have not heard the end of this issue.  Keep up to date and fully informed on all the newest information relating to the new tax reform plan, as well as other important topics that affect you and your money.  The easiest way to do this is by subscribing to our monthly newsletter.

Subscribe Here

No Comments

Post A Comment

0 Shares
Share
Tweet
+1
Share
Pin