Toward the end of April, President Trump unveiled his much-anticipated income tax plan. The reform is aimed at simplifying income taxes for the majority of Americans, and encompasses some pretty major changes. Of course, the plan has yet to pass through Congress, and could change over the coming months. Let’s take a look at what we know right now, so you can begin to evaluate how the changes might affect you.
A doubled standard deduction. More taxpayers might opt for the standard deduction, since the plan proposes doubling it to $24,000.
Many common deductions could be eliminated. While the standard deduction is set to potentially double, many common itemizations could be eliminated. The plan still includes deductions for charitable contributions and those related to mortgage interest, but does away with property tax and medical expense deductions.
Fewer tax brackets. As part of the potential streamlining of the tax code, our current seven tax brackets would be reduced to only three. Tax rates for these brackets would be set at 10 percent, 25 percent, and 35 percent. Those who currently fall into a higher tax bracket might see a lower tax bill, while those in the lower brackets would probably keep paying at about the same rate.
Say goodbye to the Alternative Minimum Tax and Estate Tax. For higher-income taxpayers, elimination of the Alternative Minimum Tax and Estate Tax would be a welcome relief. The proposed plan would do away with these taxes.
Lower taxes for small businesses. Currently, small business owners face individual income tax rates as high as 39.6 percent. The proposed plan would reduce that rate to 15 percent, in hopes of encouraging small businesses to prosper.
Keep in mind that “proposals” are just ideas in their earliest stages. As Congress mulls over the tax plan, each part of it will be debated and evaluated. Generally speaking, a president’s proposals rarely pass through Congress unaltered. So, these proposed changes are far from set in stone at this point. What you should remember is that income taxes can change from year to year, and sometimes dramatically depending upon new legislation. Keep in touch with us so that we can continue to help you anticipate and accommodate any changes to your long-term financial outlook.