President Donald Trump made major promises in his campaign that he would be introducing the biggest tax cuts in America for over 30 years. That is a big promise to make and a lot is expected from the new President.
Trump’s proposed tax plan is quite simple – lower income tax rates for all. There will be three brackets rather than the earlier six. They are 12 percent, 25 percent, and 33 percent. Trump plans to raise the standard deduction for single filers to $15,000, from the earlier $6. Similarly, for married couples, the standard deductions will be $30,000, up from earlier $12,600.
So what does this mean for you? Timothy Speiss, who heads the personal wealth advisors department at the accounting firm EisnerAmper explains, "For many middle-income taxpayers, the new standard deduction [under Trump's proposal] may exceed their itemized deductions, thus allowing a higher deduction.”
The Urban-Brookings Tax Policy Center did their calculations on Trump’s proposed tax plans and also did their estimates on a similar tax proposal of the House Republicans. The findings are interesting.
Trump’s plan will include a repeal of the estate tax and the alternative minimum tax. This means your itemized deductions will be worth a lot more.
Presently, a taxpayer can pass up to $5.45 million to their heirs without an estate tax, while for married couples, it is double that, at $10.9 million. Above this, an estate tax of 40 percent needs to be paid in 15 states and the District of Columbia.
Only the richest Americans pay the estate tax. There were only 10,800 estate returns were filed last year, of which the government collected $18 billion. So the richest in the country would stand to benefit if estate taxes are removed.
Steven Mnuchin, Trump’s Treasury Secretary said that there wouldn’t be any significant tax cuts for the rich. He said in an interview on CNBC’s Squawk Box, "Any reductions we have in upper-income taxes will be offset by fewer deductions so that there will be no absolute tax cut for the upper class."
He added, "We'll cap mortgage interest but allow some deductibility. When we work with Congress and go through this, it will be very clear. This is a middle-income tax cut. And the child care credit is a big aspect of this."
While most taxpayers will benefit from Trump’s proposed tax cuts, it is possible that single parents with dependent children will end up paying more in federal income taxes. That’s because the tax plans call for a repeal of the personal exemptions for taxpayers and their dependents by eliminating the head of household tax filing status.
Also, the tax plans are expected to cap itemized deductions for charitable contributions at $100,000 for single filers and $200,000 for joint filers. "The potential limitation of charitable contributions within the $200,000 framework is very controversial," Mr. Speiss said.