What you need to know now about tax code legislation
The big news yesterday was that President Trump finally unveiled the new plan for tax reform legislation. Upon inspection, it’s more of an outline or idea than a firm plan, so don’t take too many of the promises and headlines about the contents too seriously just yet.
For example, the proposed standard deduction for married individuals filing jointly would jump from $12,700 to $24,000, which sounds great. But the personal exemption for dependents (currently at $4,050 each) would be eliminated, and child tax credits “significantly” increased. That’s a bit more of a mixed bag. Unless the requirements for the child tax credits change, which currently limit the credit to children under 17, a family with two young adults in college (dependent, but over 17) could easily see a net increase in taxes rather than a decrease under that scenario. The point is that whether or not you will benefit from the coming changes, whatever they are, will depend on your individual situation.
It’s a similarly vague plan, at this point, for business tax changes. The proposed corporate tax rate is 20%, rather than the 15% mentioned during the election campaign, but 20% is still quite a drop from the current 35% rate. Again, this sounds like great news. But some business deductions and industry-specific incentives (i.e., the domestic production activities deduction) will go away, so it could end up being an increase, decrease, or revenue neutral for your business, depending on the new rules when finalized, for your specific situation.
The aim of tax reform is certainly laudable, but the devil is in the details and bi-partisan cooperation will be required. That’s going to be the challenge.
Too often, when the headlines tell you the wealthy won’t benefit, but that lower and middle-income taxpayers will find relief, many in the middle class find that they’re considered by Washington to be wealthy. However, under the initial framework, estate taxes will go away, as well as the generation-skipping transfer tax.
Currently it’s still a very fluid situation as our elected officials work on finding common ground, but change is likely to happen. To find out what that means for you as an individual, call our office and we’ll be happy to help you plan for the new structure once it’s in place. In the meantime, stay tuned here and we’ll keep you informed on the latest legislation as it happens.