If you’ve ever tried to do your own taxes and had your eyes start to cross on you, you know how intricate the U.S. tax code is. As a bookkeeper, who happens to be an accountant, even I agree that our tax code needs simplification.
Just this week, House Republicans released the Tax Cut and Jobs Act, legislation aimed at simplifying the tax code. Lawmakers say it’s so easy that everyone will be able to file their own taxes on a postcard. We’ll have to wait and see about that, but in the meantime, here’s a breakdown of the new tax plan:
- TAX BRACKET REDUCTION – Right now there are seven tax brackets. Under the new plan, there would only be four. They are: 12% applying to individuals who make between $12,000 and $45,000 or married couples who make up to $90,000, the 25% bracket applying to single filers making at least $45,000 or married couples making at least $90,000, the 35% bracket applying to single filers making at least $200,000 or married couples making at least $260,000 and the 39.6% bracket, which would apply to single filers making at least $500,000 or married couples making at least $1 million.
- EXPANDED CHILD CREDIT– Parents, right now you get a $1,000 tax credit per child; under the new plan that number goes up to $1,600. However, the new tax plan gets rid of the dependent exemption, which allows for $4,050 for each qualifying dependent. Critics say that could negatively impact a lot of families.
- BUSINESS BREAK – If you’re a business owner, Republicans want to reduce your federal corporate tax rate from 35% to 20%.
- DEDUCTIONS – While the number of tax brackets is changing, under the new tax plan, the standard deduction for single filers will go up from $6,350 to $12,200 and from $12,700 to $24,400 for married couples who file jointly. However, personal exemptions would be eliminated, which accounts for another $4,050 under the current system.
The new tax plan would slash most itemized deductions but will increase the amount you can deduct on charitable contributions. It will also put a limit on home mortgage interest at $500,000.
Before all these changes can take place, both the House and the Senate have to vote on the new tax plan and then President Trump has to sign it into law.
Let’s see what happens, but in the meantime, I have to say that even if it does pass, I hope you’ll still reach out to our Brigade Bookkeeping team for your weekly and monthly bookkeeping needs. I think the only thing that should be on a postcard is hello to friends and family while on vacation.
Have a great week everyone!