In this article, I will be writing about the new income tax bill that is being proposed in congress and how it will affect you if this bill passes says, William D King.
In December of 2017, there was a new addition to the current federal tax laws from congress explains William D King. The name of the bill is “The Tax Cuts and Jobs Act”, but most people call it by its nicknames such as “The New Income Tax Bill” or the “2017 Federal Income Tax Bill”. This bill has been passed in both chambers of Congress, which means it’s going to be effective beginning January 1st, 2018 until December 31st, 2025. If you haven’t heard about this bill or didn’t know that it existed then this would be a great time for you to research it. This bill has many changes and the majority of them will affect your wallet.
Here’s a list of some of the proposed changes:
1) If you’re single, you’ll pay a flat rate of 12%.
2) The standard deduction for married couples is going up from $12k to $24k.
3) There is an increase in the child tax credit from $1,000 to $2,000 per child under 17 years old.
4) They are changing how much money you can invest into your 401(k). . Currently there is no limit as long as it doesn’t exceed your yearly earnings. But if this bill passes they will put an annual cap at $20,000.
5) If you own a small business the corporate tax rate will be reduced from 35% to 20%.
6) They are implementing a new tax deduction for self-employment income of sole proprietors, partnerships, and S corporation owners equal to 20 percent of “qualified business income,” with the first $315,000 in earnings exempt from this deduction. I recommend that you look at each one of these changes and how it will affect your personal finances if they pass. These changes will start this year in January and continue until December 31st, 2025. Some people think these aren’t such bad changes because they won’t affect them much but when you look deeper into it I can guarantee that they do affect everyone especially young adults like me. I will use myself as an example to show you how these changes can affect us says, William D King.
For this example, let’s say I’m a single filer who is 22 years old and has no children. First of all, if they passed the bill then my tax rate would be 12% which only applies to the first $45k of income. For me, that doesn’t affect me much because my full-time job earnings are about $20/hr so after taxes I usually get around $1,300 every two weeks. So in 2018 if everything stays the same then this means that out of my paycheck before taxes I’ll have around $1150 for each biweekly pay cycle. Now that might not seem like much but when you factor in things like rent, gas, phone bill, and other necessities then it can become very hard.
What if my situation isn’t as great as I think it is? Let’s say that after all those expenses I have about $400/month to save or spend on anything else. In 2018, the new proposed tax bill will affect me by reducing my take-home pay from $1,350 biweekly to around $1,078 biweekly. This means that I would have a little over $250 less every two weeks for things like going out with friends or buying clothes. And what happens when you don’t have any savings and you run out of money halfway through the month? You might end up borrowing money from your family/friends which comes with a nice fee of interest.
Now you might be thinking where did all that money go? Well, most of it went towards gas and groceries because you had enough for those things at least. Let me remind you that these were my two biggest expenses also which is why I used them as examples. Whether you choose to believe it or not this is a real-life scenario if the proposed tax bill passes. So tell me what you’ll do with the extra money every two weeks because you should know by now that other people are going to be spending it one way or another!
The proposed tax bill can affect you now, later in life, or not at all. I recommend that the next time someone tells you they’re for these changes because it helps them then remind them that it also helps everyone else says, William D King. There are many factors that determine if something is good or bad but with this bill even if you think everything will be fine then take a step back and look at everything at hand to truly understand what’s happening.