Biggest Income Tax Overhaul since 1986 – Christmas Gift or a Lump of Coal? What will it Mean for you?
The biggest income tax overhaul since 1986 is likely to pass over the coming weeks. The single largest overall effect is that it will reduce the highest rate corporations pay from 35% to 21%. This puts the US more on parity with the Rest of the World.
This change has already caused prices of some companies (that will benefit the most) to increase. It will have much broader implications over coming weeks and months and even years.
You are probably more interested to know how it will affect you. The answer is that most of our clients in the Carolinas are likely to have a lower tax bill, especially those who have no debt.
The largest benefit for individuals is the increase in the standard deduction, which will likely be doubled. Middle-class couples with kids reap the biggest benefit. Having a high standard deduction will make it more difficult to take itemized deductions. Tax filers with high itemized deductions see less benefit because they won’t take the standard deduction. These people with higher taxable income could see their total taxes increase due to caps on mortgage interest and state and local tax deductions. For this reason, the bill has been strongly opposed in states like California.
- Pass through businesses (like sole proprietors) could see top tax bracket drop from 39% to 30%
- Retailers will see corporate tax rate fall from 35% to 21%
- Middle class households with kids could see taxes drop significantly
Lump of Coal:
- High earners in high income and property tax states like New York and California
- Debt-burdened companies. The new plan will limit interest deductions
- Proposal adds $1.5 trillion to budget deficits (unless strong economic growth manifests).
You can use this tool to calculate how it will impact taxes in 2018: