Six ways Trump’s tax plan could affect ordinary taxpayers
We hate #2.
President Trump’s plan could cut taxes for some middle- and high-income families and for parents, and also reduce taxes for businesses large and small. The plan would also substantially increase the standard deduction, which reduces an individual’s taxable income, and would eliminate some common tax deductions such as those used to offset medical costs or state and local taxes.
Here is a look at some of the major changes that could affect you.
1. Larger standard deduction would mean lower tax bills.
The plan calls for doubling the standard deduction that people can claim on their income tax returns, which would lower tax bills for some taxpayers and lead to a much simpler tax filing process for others. Under the proposal, married couples filing jointly would not owe income taxes on the first $24,000 of income (up from $12,600).
2. Most tax deductions are going away.
All individual tax deductions would be eliminated with the exception of deductions related to home ownership and charitable contributions.Under that scenario, taxpayers would no longer be able to write off expenses now commonly deducted, such as state and local property taxes and medical expenses.
3. Fewer tax brackets.
The proposal would reduce seven tax brackets to three brackets with tax rates at 10 percent, 25 percent and 35 percent. Currently, tax brackets range from 10 percent to 39.6 percent, based on income. High-earning taxpayers could see an immediate tax break on their income taxes, while low-income families may not feel much of a change. However, the proposal did not disclose the income ranges for the new tax brackets.
4. Bigger tax breaks for parents.
The plan calls for increasing the tax benefits available to families paying for child and dependent-care costs, such as day care, but few details were provided. Trump is considering raising the Child and Dependent Care Tax Credit, a tax break that allows parents to reduce their tax bills by up to $2,100, based on how much they spend on child care.
5. Reduced taxes on the wealthy.
The plan calls for eliminating two key taxes that traditionally affect higher earners: the alternative minimum tax and the estate tax. The alternative minimum tax was enacted to ensure high income earners would pay a minimum tax even if they were claiming numerous tax breaks. But the tax now affects about 5 million middle- and high-income taxpayers, according to estimates from the nonpartisan Tax Policy Center.
The estate tax, which is also known as the death tax, affects people who inherit wealth or businesses worth more than about $5.5 million.
6. Lower tax rate for business owners.
Some small and family-run businesses are subject to individual income tax rates, which can be as high as 39.6 percent. Under the president’s plan, they would pay a lower rate of 15 percent.
