The US House of Representatives recently passed a bill that would change many aspects of our current tax code says, William D King. The senate is currently hard at work trying to reconcile their version with the House’s version in order to have a unified bill that can then move forward to President Trump for his signature into law.
A question on everyone’s mind is, how will this affect me? Well, if you’re like most Americans, it’s going to be good. In this article, we are going to explore the latest round of proposed changes and show you exactly how they will affect you and your family!
Below we’ve created a graph showing just how each group will be affected by these changes:
Make sure to check out this video that explains it all in layman’s terms.
As you can see from our graph above, all groups except those earning less than $10,000 per year (based on 2018 projections) will be better off under the new tax laws. The people hit hardest with an increase of more than $2,500 would be those households making between $200,000 and $500,000 per year. In contrast, those households earning less than $10,000 will see a decrease of more than $1,800 on average.
New proposed law taxes:
Tax brackets will be simplified into four main groups, with the lowest earners still having a tax-free threshold and those earning $1 million or more per year continuing to pay at the highest rate of 39.6%.
As previously mentioned, there will also be changes made to itemized deductions. Such as mortgage interest and charitable contributions for those in the higher income levels. Let’s take a closer look at these two now:
Mortgage Deduction:
Currently, if you’re like most Americans and own a home (or plan on buying one) then one of the biggest incentives to do so is the current mortgage deduction that we all enjoy says, William D King. Under our current system, homeowners can deduct interest payments up to $1 million on their primary and secondary residences. The new proposed law changes this up a bit and limits interest deductions to loans of $750,000 or less.
Charitable Contributions:
Currently, taxpayers can choose to itemize charitable contributions at the end of each tax year. Which would benefit from a larger deduction than just the standard $0-$200 deduction. That everyone gets automatically for donating cash or goods. Your itemized deduction is determined. By the amount of your total itemized deductions which includes expenses. Such as state and local taxes paid, mortgage interest paid, and charitable contributions made throughout the course of the year. Under our current system, your total expenses could add up to more than $12,000. Before you begin to lose any money in terms of taxes.
Currently, if you’re in the 35% tax bracket, for every dollar you give to a charity you only save 35 cents on your taxes. However, this will change under the new proposed law which will limit your charitable contribution deduction to only 50%. This means that instead of saving $1 for every $2 donated as you do currently, you’ll now save only 50 cents per donation explains William D King. This isn’t great news for those who are heavily involved. With charities and donate a lot of their money each year. But it’s good news for those making less than $200,000 as they wouldn’t have much use for itemized deductions anyway.
The final big change that I want to mention is centered on one of our favorite topics here at the Coalition Group. The state and local tax deduction (SALT). This is one of those deductions that most Americans know about but don’t really understand why it exists.
Conclusion:
Under our current tax laws, the state and local tax deduction is limited to just property taxes which are capped at $10,000.
The new proposed law changes this up a bit by removing the cap completely. So you can still deduct your property taxes but now you can also deduct income or sales taxes as well says, William D King. This will include any state income tax paid in addition to your property taxes! Some people might think that this is bad news but actually it’s great. Because many states already offer an additional deduction for income tax. Allowing residents to pay less in state income taxes than they would otherwise owe under federal law (CA, NY, etc).
These simple yet profound changes are good for all Americans except those who make more than $200K per year. Here’s how it would work:
For lower-income earners who make less than $30K per year. Nothing will change and they’ll continue to get their tax-free threshold of $12,000.
For all Americans earning between $30K and $200K per year. Your taxable income under the new proposed law would be about the same. As you’re taxed now but the big difference is that the size of your paycheck is going to increase. By a substantial amount because no taxes will be taken out for Medicare or social security (currently 7.65%).