President Trump’s new tax plan, the Tax Cuts and Jobs Act, is a potent document that has spelled out great financial and economic changes for the United States’ and it’s residents. While many of our readers are familiar with some of the more basic nuances of his plan, such as cutting the corporate tax rate from 35% to 21%, the document itself is actually quite lengthy, and contains various clauses that many are not aware of. The trusty CPA’s of Accounting Solutions Ltd. have been working hard to prepare for this bill’s implementation, and, since 2018 has begun, have consulted many of our clients regarding how it will affect them. Today, we are going to explore some of the less publicized components of this new financial reform. Whether you agree with the Act or not, it is always important to have a full understanding in regards to how such changes can affect ourselves as individuals, as communities, and as a country as a whole, so read on…
- Although seven income tax brackets still exist, tax rates themselves have been lowered. While many taxpayers can expect this to be reflected in slightly larger paycheques, some wealthier individuals may find themselves being bumped into a higher tax bracket (likely around 35%).
- The standard deduction has been doubled, increasing from $6,350 to $12,000 for individuals, and taking a jump up to $24,000 for joint filers. This is set to return to its current level in 2026. While the deduction has increased, personal exemptions are no longer valid, therefore families with large numbers of children may be unable to reap the benefits of these alterations.
- Deductions revolving around moving expenses, alimony, or other itemized deductions are no longer valid. In addition, deductions revolving around mortgage interest have been modified to only apply to $750,000 of the loan in question.
- One of the biggest changes that has occurred with to the introduction of this reform is also a source of great controversy: the Obamacare tax on those without health insurance will be officially repealed in 2019. This is predicted to lead to many people dropping their medical plans, and could potentially lead to increased health care costs as these people fail to prescribe to the preventative care that this system enforced.
- The estate tax exemption has also doubled, going up to $11.2 million. This will decrease taxes for those a small, wealthy group of people, and are set to return to pre-Act levels in 2026.
- When it comes to child care, the Act increases the child tax credit from $1,000 to $2,000. Even those families that fall into the lowest income bracket are still eligible to claim the credit for up to $1,400. In addition, there is a $500 credit that applies for each non-child dependent. The latter will serve to assist those who are tending to elderly or disabled family members.
One important thing to take away from this act is the fact that its effects are ultimately designed to stimulate the economy, something that assists businesses more than individuals. While cuts that affect individuals are set to disappear in 2025, the ones that are imposed upon enterprises are to be upheld indefinitely. Those with the highest incomes face the biggest tax cuts, while everyone can potentially benefit from an increase in the standard increase. As the bill has only recently been implemented, many of us wait with bated breath to see how it truly unfolds. Accounting Solutions Ltd. is dedicated to helping the people of Chicago make sense of such financial matters, therefore, if you have any further questions or are wondering how these changes will affect you, your family, or your business, then don’t hesitate to reach out to us, we are more than happy to help.
**Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, we would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.**