At the end of April, President Trump’s administration set forth proposed tax reform that would dramatically simplify the tax filing process for most Americans. The new code, if it passes, would eliminate many common deductions, but also result in lower taxes for a large number of us. Of course, this is all theoretical at this point, but you might be curious about how this new streamlined tax deal would affect you.
A doubled standard deduction. The new tax plan would effectively double the standard deduction to $24,000.
Farewell to many common deductions. In an effort to streamline the tax code, the plan would do away with most deductions such as property tax deductions and those related to medical expenses. So far, the proposal still includes deductions related to home ownership and charitable contributions.
Fewer tax brackets. The new plan would compress current tax brackets from seven to three, with rates set at 10 percent, 25 percent, and 35 percent. Some higher income taxpayers could see a smaller tax bill, while those on the lower end of the income brackets might not notice a difference.
No more Alternative Minimum Tax or Estate Tax. The new plan would eliminate these two taxes, which commonly impact wealthier taxpayers.
Lower taxes for small businesses. Small business owners currently pay individual income tax rates as high as 39.6 percent. Under the new plan, the rate would be reduced to 15 percent.
These are just some of the proposed changes to the federal tax code, and again, this bill is far from set in stone. It will likely evolve as Congress debates various merits of the plan, and legislators weigh in on what their constituents want.
The important thing to remember is that the tax code can change from one year to the next, and at times drastic changes can occur. So as you plan for retirement, leave a little bit of wiggle room in your imagined budget. Depending upon your exact situation, proposed changes could increase or decrease your tax liability. And as always, keep in touch with us so that we can advise you on the changes that affect you. Consistent financial planning can often help to lower your tax bill in the spring, but we usually need to anticipate these changes and make plans to your strategy ahead of time.