President Trump And The New Tax Code
Feb 2, 2017
President Trump definitely has big plans! One major point on his campaign trail was an overhaul of the tax code. What does this mean for individual taxpayers?
1. Nothing this year
You won’t see any changes this year. The taxes you’ll file before April are for 2016; the rules that govern them have already been established. However, there may be some clarifications and minor modifications at the periphery of this year’s tax code.
This includes the individual mandate of the Affordable Care Act. You’ll need to provide documentation of your health insurance for each month of 2016, unless you’re exempt.
Another issue to monitor is the extension of tax deductions for mortgage insurance premiums. They were tax-deductible for 2015, but congress has not yet renewed the break for 2016.
2. Simplified brackets for 2017
The tax code works by establishing a percentage of each threshold of money to be taxed. For a single person making $20,000 a year, under the current plan, the first $9,750 is taxed at 10%, then the remaining $10,250 is taxed at 15%. Trump won’t overhaul this system, but plans to make some significant revisions.
One planned revision is a reduction in the number of tax brackets. Currently, there are seven tax brackets; under the proposed Trump policy, there will be only three. For both couples and individuals with incomes over $415,000, this will reflect a significant reduction in their tax burden.
To cover this loss of revenue, two brackets will see an increase. The first $9,750 ($18,550 for married couples) will now be taxed at 12%, and amounts between $112,500 and $190,150 ($225,000 and $231,450 for couples) will be taxed at 33% instead of 28%.
3. Deduction changes
To compensate for this greater tax liability, there will be significant changes to the way deductions work. The standard deduction will increase to $15,000 for individuals, and $30,000 for couples filing jointly. For most people, the first $15,000 they earn will be tax-free.
For those who itemize their deductions, it’s more complicated. First, deductions are capped at $100,000, which may be a blow to small business owners. Second, deductions will phase out for high-income earners. If your income is over $261,000 ($313,800 for couples), you’ll only be allowed to deduct a percentage of your itemized deductions.
There’s also no more “head of household” filing status. Couples with more than two children won’t be able to claim exemptions for them, but will be able to deduct a greater portion of their child care expenses from their income.
Other parts of the Trump plan include repealing the estate tax and an end to the so-called marriage penalty. Remember: every change will have to pass Congress before it takes effect. It’s likely that some, but not all, of these changes will be made for 2017.
Your Turn: What changes do you want to see happen in the tax code? Let us know how to fix the system in the comments below, and check out what other people are saying!