TRUMPS New Tax Plan: How Every Working Man And Woman Will Benefit From It

By Missy Jackson | Monday Monday Staff -    2017-12-22

President Trump shows-off his signature on the first major tax cut bill in 30 years. | Photo credit NBC

In a surprise ceremony on Friday, President Trump kicked off Christmas weekend by signing the Tax Cuts and Jobs Act. The sweeping legislation is the first of its kind since Ronald Reagan took office more than 30 years ago. We have summarized the important changes, so you can better understand how the tax reforms will affect your family.

Income Tax Brackets

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Taxes-Photo credit: 123rf.com

Although the president initially discussed reducing the number of tax brackets from seven to four, the number stayed the same. However, six of the seven income levels will see a reduction. Workers will start seeing the reductions in income tax as seen below in 2018. and they will continue through 2025.

Current Rate

2018-2025

Single Filers

Joint-Married Filers

10%

10%

$0-$9,525

$0-$19,050

15%

12%

$9,525-$38,700

$19,050-$77,400

25%

22%

$38,700-$82,500 

$77,400-$165,000

28%

24%

$82,500-$157,500

$165,000-$315,000

33%

32%

$157,500-$200,000 

$315,000-$400,000 

33%-35% 

35%

$200,000-$500,000

$400,000-$600,000

39.6%

37%

$500,000+

$600,000+

 

Changes to Itemizations

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IRS-1040 tax form | Photo credit WikiMedia Commons

In addition to lowering the amount of income taxes, the new tax law eliminates most itemized deductions. Beginning next year, filers can no longer deduct moving expenses unless they are serving in the military. If you pay alimony, that is not deductible either. But anyone receiving alimony payments can claim the deduction on their return.

However, some important deductions are still in place with the new law. Student loan interest, contributions to charities, and retirement savings can still be deducted. Deductions on mortgage interest is now limited to the first $750,000 of a home loan. Home equity lines of credit will not be deductible for new mortgage holders.

Moreover, taxpayers can deduct up to $10,000 in state and local taxes. But they must choose between property, income, or sales taxes. Additionally, the Act expands deductions for medical expenses in both 2017 and 2018. Which, given the rising costs of healthcare, is a big win for Americans dealing with serious health issues.

Prior to the president’s tax reforms, taxpayers could only deduct qualifying medical expenses that exceeded 10% of their income. Now, that number is lowered to 7.5%. Almost 9 million people took advantage of this credit in 2015 alone. Of course, this isn’t the best news regarding deductions.

Standard Deductions

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Income tax refund check. | Photo credit: money.cnn.com

The standard deduction, which most taxpayers choose over itemizing, is essentially doubling until 2026. For single filers, it jumps from $6,350 to $12,000. For married and joint taxpayers. it increases from $12,700 to $24,000. Raising the standard deduction means American workers will pay even fewer taxes on their hard-earned money.  

Obamacare Tax

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Trump tax bill repeals Obamacare mandate. | Photo credit Fox News

What’s better than paying fewer taxes? How about not being blackmailed into paying the Obamacare tax for not having health insurance. With Obamacare rates skyrocketing around the country, and insurers dropping out of the marketplace like flies, even more Americans would be paying the penalty next year.  Thankfully, Trump’s tax bill repealed the mandate.

Credits for Children and Elderly

Ivanka and Donald Trump
First Daughter Ivanka helped President Trump secure a higher child and elderly tax credit. | Photo credit Washington Post

First Daughter Ivanka Trump, worked hard to lobby Congress for an increase in the Child Tax Credit. Fortunately, her efforts are paying off for American families. The credit is doubling from $1000 per child to $2000 beginning in 2018.

Moreover, low-income parents who don’t earn enough to file taxes can now receive a credit up to $1,400. And, more married filers will be able to take the credit too. The income limit for married individuals to claim the credit is going from $110,000 to $400,000.

The bill also allows parents to use 529 savings plans for tuition at private and religious K-12 schools. Homeschool parents can also take advantage of the savings for their expenses. Families caring for elderly relatives benefit as well. Those individuals can claim a $500 credit for each non-child dependent.

Large and Small Businesses

Both small and large businesses benefit from the Trump tax bill. | Photo credit New Design

Small mom and pop stores, large corporations, and every business in between benefits from President Trump’s tax cuts. The corporate tax rate is substantially reduced from 35% to 21%. Rates for businesses have not been that low since the late 1930’s.

The standard deduction for sole proprietorships, LLP’s, LLC’s, and small companies is increasing to 20%. Although, once total income reaches $157,500 for singles or $315,000 for joint filers, the deductions are limited.

As we’ve discussed recently, and contrary to assertions made by critics of the Act, this is good news for American workers and Social Security recipients. Both groups stand to reap the benefits of lower corporate tax rates.

Economic Benefits

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Almost every working American will save money with the new tax reforms. Photo credit: Market Watch

According to the Tax Foundation, the changes will boost the GDP by 1.7% each year. As a result, there will be over 300,000 new jobs added and an almost 2% increase in wages. Per the U.S. Treasury Department, the cuts will generate an additional $1.8 trillion in revenue.

And they estimate the bill will produce economic growth of 2.9% a year. Even better, the additional payroll tax revenue generated from the booming economy will stabilize social security.

These changes notwithstanding, there are some potential downsides.

Personal Exemptions

Personal exemptions are eliminated under the new tax law. | Photo credit Bigger Pockets

Although the new tax law doubles the standard deduction for taxpayers, they are losing the $4,150 personal exemption. For families with children, this is likely not a major problem. The increase in child tax credit will offset losing the exemption. But for single and married filers without children, this could be an issue.

Another problem is the expiration date on individual tax cuts. Personal income tax reductions are set to revert back to current rates in 2026. If Congress fails to renew the reforms, taxpayers will likely pay more taxes than they do right now. All the more reason to rock the vote in 2018 and 2020, right?

A Reason to Celebrate

American workers can celebrate tax cuts. | Photo credit iStock

Regardless, President Trump delivered an early Christmas present. Even critics agree that almost every single working man and woman will benefit from the changes. While nobody knows if this benefit will last beyond 2025, it’s here now and that’s what matters.

In any case, it is not the “apocalypse” Rep. Nancy Pelosi suggested it would be a week ago. A Joint-Tax Commission analysis confirms that the middle-class will enjoy $61 billion in tax cuts just in 2019 alone. That is a big win for President Trump and working-class America.

So take a deep breath, relax, and think about how you’ll spend (or save) your hard-earned money.

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