The Lastest Updates to Trump's Tax Reform
It’s that time again. Trump Tax Talk!
This past week, we received a little bit deeper proposal for, what the White House has labeled the “Unified Framework for Fixing Our Broken Tax Code.” The full transcript for the proposed framework can be found HERE.
There are many similarities from the last time there was a proposal from the Trump Administration and that is summarized HERE. There’s still many questions as to whether this tax cut will be more of a tax cut for the ultra-wealthy, or if it will be a bigger benefit to the lower and middle class. Time and research will tell, but so far there are a couple of things to note.
- A larger standard deduction – a proposed larger standard deduction (24,000 for a Married Filing Jointly return, and 12,000 for Single Filers). This will be beneficial for those who no longer have as many deductions as they once did. Typically, this is people who have their home paid off, and their income in retirement is a bit lower so not as high state tax deduction.
- The Alternative Minimum Tax would be repealed. This is great news! This provision is very difficult to understand as well as plan for. This will definitely make the tax code simpler and be a big benefit for those who have been affected by it in the past.
- Enhanced Child Tax Credit – A major concern was addressed in this most recent update. It was rumored that the personal exemption (in 2016, each dependent received a $4,100 exemption) would be eliminated. This would hurt families with children still at home (or away at college). A family of 5 would lose an exemption (which is similar to a deduction) of $12,300 – definitely a huge loss. In the proposal, the personal exemption is being replaced with a larger child tax credit. The specifics of this hasn’t been disclosed yet, but definitely something to keep a closer eye on.
- State and Local Tax deduction would be eliminated – unfortunately, this is something that will not help taxpayers in higher tax states (like California!). I would assume that this will be debated quite a bit, so there is still more to come here. The higher standard deduction may help some, but there’s also rumors of eliminating the property tax deduction. If the combination of both of these are eliminated that would increase taxes for many, especially considering California has some of the highest income tax as well as property tax rates in the country.
Unfortunately, the most important piece to this entire puzzle is where the income brackets will line up. This will be the biggest indicator in how much it will help someone’s personal situation. Time is running out to make major changes for the 2017 Tax Year, so there is a growing likelihood that any tax reform will have to wait to be installed for next year. In the meantime, we will continue to keep you all updated on rumors and possible impacts to your individual situation. We are here to serve!