As I prepared to write my monthly blog, I thought about why a blog is such a popular means of communication.
“Blog” is actually a contraction of two words – web and blog – giving an individual a platform to lead a discussion or share an information post. It is a fantastic way for people with an area of expertise to generate a conversation with peers across a vast network that they otherwise could never reach. And that is why I enjoy this opportunity as a CPA with an expertise in tax combined with good business sense to provide direction to privately-held, middle market business owners and entrepreneurs.
In that regard, tax is one of the few topics that can really ignite an emotional conversation. With the April 18, 2017 deadline for filing personal income taxes on everyone’s mind and so much uncertainty about the future, this topic is even more at the top of every business owner‘s list of concerns.
So where do we seem to be heading?
Under the tax changes for personal income taxes proposed by President Donald Trump (key word here is proposed!), some individuals would pay more and some would pay less. Over all, the plan’s promises to pare down the seven existing personal income tax brackets (that include 10%, 15%, 25%, 28%, 33%, 35% and 39.6%) to three (that include 12%, 25%, 33%) with the anticipation that most taxpayers will fall into one of the two lower categories and at the same time eliminate personal exemptions in favor of more than doubling the standard deductions from $6,300 for single filers to $15,000 and from $12,600 for married joint filers to $30,000 (but remember they would lose the additional exemptions they currently enjoy for their children). Itemized deductions would cap out at $100,000 for single filers and $200,000 for married couples filing jointly.
The tax system is complicated though, and the enthusiastic expectation that there would be lower taxes paid by American workers would depend on a number of different criteria including filing status (head of household for example) and earned income. In addition, the alternative minimum tax (ATM) would be eliminated as would gift and estate taxes which is currently applicable to only the wealthiest individuals– who currently comprise less than 1% of all taxpayers.
Of course there are a wide variety of interpretations and opinions on the possible scenarios, but given the limitations of space in a blog, I will give a brief overview here and can offer you a more in-depth discussion if you call or email me if you prefer.
Your Taxes Decrease!
It is generally expected that taxes would decrease, on average, under the Trump plan according to the Tax Foundation. One of the most obvious changes is that those currently paying 35% or 39.6% tax on their income would be shifted down into the category that will be taxed 33% on their earnings. The drop is going to impact the top 1% of high income taxpayers who will, by many interpretations, benefit the most.
However, for those at the very lowest income earning end of the spectrum, there is also a caveat. Because of the proposed plan’s higher standard deduction, single taxpayers earning $15,000 or less, or a married couple filing jointly earning $30,000 or less, could claim the standard deductions (which are exceed their income) and therefore pay zero taxes.
Your Taxes Increase
Middle income tax payers might pay more if, as a result of reducing the seven tax brackets to three brackets, they are shifted into a higher tax bracket, for example, going from paying 28% on their income to paying 33% on their earnings.
Other individuals whose taxes will rise are those designated as head-of-household payers. As a result of the elimination of the head-of-household deduction, this group of single parent tax payers would experience the greatest tax increases under this plan. While the increase might not be huge, these families are often in the most difficult financial situations already and any upwards trend in taxation would be a financial blow, with the loss of incoming increasing with each dependent child. It is important to recognize that a single parent with three children could lose more than $10,000 in deductions under the proposed plan’s calculations.
Although there is a lot up in the air regarding tax reform, it is always prudent to consider all your options and prepare for the future by making educated decisions, considering your personal and professional situation and life cycle phase as you develop your business and tax strategies.
I will discuss the impact of the Trump Tax Plan on the business community next month!
This column will provide business advice and new perspectives on business news, emerging trends and traditional topics impacting individuals, family businesses and professional service providers across the tri-state area.
The opinions expressed herein are the writer's alone, and do not reflect the opinions of TAPinto.net or anyone who works for TAPinto.net. TAPinto.net is not responsible for the accuracy of any of the information supplied by the writer.