Are you ready to cash in on the huge tax breaks that will be available next year under the new Trump Tax Plan?
Well, they may not be as big as you think, or if they are it could be a problem.
That is because I heard a little secret about these proposed changes and how they might affect your ability to take advantage of them from my friend Walter from New Jersey at a recent convention where I was speaking says William D King.
Let me give you some background. If this sounds complicated, don’t worry-I’ve boiled it down to its most essential information for you here. Walter is an accountant by trade and he works for one of those “Big 4” global accounting firms – yes there are only four, just as there are only 5 major automakers in the United States.
Walter was telling me that he’s been studying these proposed changes to the tax code very closely – as have all of his colleagues and they came to an interesting conclusion:
The big corporations and the ultra-wealthy will benefit greatly from this legislation – but it is going to be small businesses like yours and mine who will actually benefit more!
If you recall, one of Trump’s biggest promises during his campaign was a huge reduction in our nation’s top corporate tax rate from 35% down to 15%. Well, guess what? That hasn’t changed even after the recent backroom dealings with Congress. The new number remains at 20%.
This is actually higher than the 15% rate Trump had wanted and that many experts predicted we would see.
What’s more, it favors large corporations-those with profits over $20 million a year.
But what about small business owners like you and me? What will happen to us? Here’s where Walter first started to get excited: Congress wants to reduce the top tax bracket for individuals from 39.6% down to 37%. This change is huge – no doubt! And if you think about it, this equates to having an extra 2% of after-tax income next year – which means your savings could double overnight!
However, here comes the problem:
The new rates only apply to those who earn between $470,000 and $1 million annually.
So then what about those of us who don’t make enough money to benefit from this proposed change?
Well, here is the good news:
The new law would reduce taxes across the board for most people by doubling the standard deduction explains William D King. For singles, it will increase from $6,350 to $12,000; and for married couples filing jointly, it will go from $12,700 to $24,000.
Now here’s the kicker:
For those of us who already take advantage of the standard deduction each year (meaning we don’t itemize our deductions), this will be a big win! It means we will likely see even more money in our paychecks every month once these changes take effect.
However, there is one important thing that you need to understand about this before you start doing your happy dance:
A lot of people are concerned that dramatically increasing the standard deduction will result in fewer people taking advantage of the mortgage interest and charitable contribution deductions – which could create some problems down the road for home prices and charities.
And one more thing… The House proposal also eliminates the Alternative Minimum Tax. In a nutshell, this is a tax that was put into place to keep wealthy individuals from exploiting all of their available deductions in order to avoid paying any taxes at all. However, it has been criticized for requiring many middle-class Americans who work hard and play by the rules to pay a higher tax bill than they should have to.
Congress is proposing to consolidate the AOC with other education-related tax credits, so you can anticipate seeing a much simpler, more streamlined system over the next few years says, William D King.
(You may ask yourself how this could possibly be a good thing? Well, I’m not going to lie to you – it’s complicated! But here are three reasons why this change could be great news for students and their families.)
First of all, having one credit that covers multiple expenses makes sense… After all, who wouldn’t want fewer forms to fill out at tax time?
Secondly, right now your eligibility for the AOC depends on whether or not your student qualifies as an ‘eligible student.’ But did you know each year Congress has the ability to make changes to the definition of ‘eligible student’ based on their specific needs? In other words, this could be a recurring headache for you!
Lastly, there is a lot of confusion when it comes to the AOC right now. For example, students often don’t understand that they have to choose between taking advantage of this credit or deducting tuition and fees through their college’s tuition plan. Also, most parents don’t know about all of the different education tax benefits available today – which means they risk overpaying taxes each year.