If you are thinking about whether you will benefit or lose money after new tax bills come into play, you should definitely learn more about new legislations. For example, The Tax Cuts and Jobs Act that was recently passed in the Senate has the same name as the similar one proposed by the House. Both these documents can dramatically change how Americans feel themselves financially.
Both bills focus on providing significant cuts for corporations which will reduce the current 35% tax to only 20%. However, individuals will not enjoy the same level of loyalty from the government. The current proposition from lawmakers is to reduce the burden but for a certain period of time. The standard deduction is expected to double while tax brackets will be changed.
There will be also an increased inflation factor as well as reduction or permanent removal in of deductions in local and state taxes. These changes are suggested to pay for all those expensive changes on a nationwide scale.
The House focuses on giving additional deductions to teachers and students as well as divorcees and people struggling to pay off their medical bills. At the same time, mortgage interest deductions are adjusted. The bill passed by the Senate focuses on sacking penalties that were accumulated by the Affordable Care Act.
Note that the House bill will remove the so-called “family tax” by 2023. This is a good change for some people. On the other hand, the Senate Bill is only a temporary measure and will be no longer active for individuals by 2026. Some say that the sad thing is that corporate tax changes are permanent.
All of the above indicates that we may soon face some significant consequences. In the nearest future, 13 million people may end up abandoning health insurance due to increased tax burden. Premiums may rise in prices once again which is another point of concern.
Both bills are quite concerning for middle-class households. They will enjoy some cuts in 2018. However, itemizers may end up paying more than usual. Note that these changes are not necessarily positive for individuals since many will end up paying significantly more as the time progresses.
One of recent studies suggests that the Senate bill is a bit more beneficial for all taxpayers. However, as some of breaks “fade away” by 2027, the richest 1% of the population will see true benefits while other individuals will “enjoy” the bitterness of increased taxes. The study also estimates that by 2027 the poorest 20% of the population will be more in debt compared to the present time. All of these guesses and estimations are based on gross data and general observations. Individual situations can be quite different depending on various factors.
New Taxes and You
There are several interesting points that should be addressed. Let’s take as an example a young married couple. The wife is still in school while the husband is working full-time. They will not be able to deduct their dependent-care contributions while the wife will most likely lose the learning credit. However, the couple will be able to get 1 thousand dollars in child-care credit and 6 hundred per child as well as 3 hundred per adult.
Some argue that the Senate bill can half the debt of this couple by providing more family credit. These are estimations based on several assumptions: homeowners are in their 40s, two school-aged children, $22 thousand in their 401(k), passive investment income — $400, property taxes are about 4 grand, and mortgage interest deduction and child-care expenses are about 6 grand while tuition and fees cost about 10,5 thousand per year.
The short term situation can be even better for a single parent under 30, with a kid, who rents a house. With good standard deductions and increased credit, the family will enjoy from 130% to 180% reduction of their debt.
What is interesting is that older retirees will not face any consequences. They will not pay the income tax meaning that they will not be affected by both plans. However, this estimation requires retirees to have about 9,5 thousand worth of pension and the IRA income should be around 6 grand while social security income should be hovering around 26 thousand.
The senate bill provides more benefits to families that have exemptions and write-offs. Many middle-class families will enjoy huge deductions if they decide to change their mortgage plans and purchase homes where interest rate can be written off.
Businessmen may feel pressured more by the House bill since student loans and alimonies will no longer be something that can be written off. Under the Senate Plan, however, businessmen may enjoy a small improvement with 4.2% reduction of their debt.
Some of the worst cases are with men and women who are burdened with high medical bills. Some will see up to 1000% increase in debt.
The Main Takeaway
The overall estimation is that an average Joe will feel less pressured by taxes in the short term. There are some factors that can be determined only by state and local taxes. Texas people can look up relevant information at TexasTax. Not that most state and local tax deductions will no longer be actual.