Tax changes under the new administration could be the “largest tax change since the Reagan
Administration.” Key features of Trump’s plan could lead to changes with state and local government tax collection. It all comes down to standardized deductions — the amount of write-offs you can claim without having to provide lots of documentation (or even spending money on any of the things you can write off).
Here are some of Trump’s major objectives:
The number of tax brackets will be reduced from seven to three. The highest tax rate would be 33%, but but that tax cut would be offset by reducing deductions and loopholes for the wealthy.
The standard deduction will go way up. Single filers would see the amount of income exempted from taxes rise from $6,300 to $15,000. Married couples who file together would see their exemption go to $30,000. That means far fewer people would need to itemize deductions, which could change what many Americans spend on housing and charitable giving.
Itemized deductions could be capped. For the wealthy, this could have a big effect on how much they give to charity and whether they could deduct state and local taxes, depending on how the law is ultimately written.
Both Trump and Ryan say they want to simplify tax filing for most Americans. Independent analysts at the Tax Policy Center and the Tax Foundation agree that’s likely. Of the roughly 143 million tax filers in the US, currently about 48 million of them itemize their deductions, which means they need detailed records of how much they gave to charity, paid in mortgage interest to a bank, and anything else that might offer a write-off. That number would fall by more than half, to 22 million itemizers, if Trump’s plan goes through some in the middle class could be worse off. There are other big changes and effects from Trump’s tax proposal. Despite caps on total deductions, the wealthy may still benefit greatly from much lower taxes on business income.
Two changes in the plan could also increase taxes for many middle-class families.
First, it eliminates personal exemptions, which are about $4,000 for individuals and each of their children or dependents. Second, it eliminates the “head of household” tax filing status that’s typically used by single parents. So millions of families with many kids — and single parents — could end up with higher taxes under Trump’s proposal, according to an analysis by Lily Batchelder of the New York University School of Law.
“All heads of household would be made worse off,” said Williams of the Tax Policy Center.
Source: Business Insider