2018 and 2019 Tax Reform: What it Means For You

March 2, 2018adminPersonal Finance

Let us make sense of the new tax laws

By Andy Sukhu

So many new tax laws and regulations, so much to wrap our heads around.

Where do we begin?

1 – Tax Reform: What will it mean for you in 2018 and 2019?

 A– The president’s budget has a total of $3.1 trillion in budget savings relative to current law.

It includes $1.75 trillion in new spending and tax cuts, $3.7 trillion in deficit reduction that’s overwhelmingly the result of spending cuts, $800 billion in reduced spending on wars and disaster recovery, and $300 billion in savings due to lower interest payments on less debt.

B – A 27.4 percent cut to SNAP (food stamps) and a 20.1 percent cut to Section 8 housing assistance by 2028:

The Trump budget would cut Section 8 housing, which helps millions of households, by $47 billion

They’re massive and immediate. SNAP benefits are already small – just $1.40 per person per meal.

On food stamps, the budget would reduce the amount that recipients get in vouchers to spend on food of their choice

C – The budget would eliminate loan forgiveness for students who go into public service, do away with subsidized Stafford loans, and establish a new, unified income-based repayment plan for student loans.

This is a big one.

Borrowers would pay 12.5 percent of their discretionary income every month and have their balance forgiven after 15 years (for undergraduate debt) or 30 years (for graduate school debt). This is projected to save $203 billion over 10 years.

 1. Pres. Trump Overhaul: How It Affects You?

           Income Taxes Cuts

   Employees will see changes reflected in their withholding in their February 2018 paychecks. These rates revert to the 2017 rates in 2026.

The income levels will rise each year with inflation. But they will rise more slowly than in the past because the Act uses the chained consumer price index. Over time, that will move more people into higher tax brackets.

Trump’s tax plan doubles the standard deduction. A single filer’s deduction increases from $6,350 to $12,000.

The deduction for Married and Joint Filers increases from $12,700 to $24,000. It reverts back to the current level in 2026. It’s estimated that 94 percent of taxpayers will take the standard deduction.

As more taxpayers take a standard deduction, fewer would take advantage of the mortgage interest deduction.

That could lower housing prices. But this could be a good time to do that. Many people are concerned that the real estate market is in a bubble that could lead to another collapse.

It eliminates personal exemptions. Before the Act, taxpayers subtracted $4,150 from income for each person claimed. As a result, some families with many children will pay higher taxes despite the Act’s increased standard deductions. 

The Act eliminates most itemized deductions. That includes moving expenses, except for members of the military. Those paying alimony can no longer deduct it, while those receiving it can. This change begins in 2019 for divorces signed in 2018. 

The  Act limits the deduction on mortgage interest to the first $750,000 of the loan. Interest on home equity lines of credit can no longer be deducted. Current mortgage-holders aren’t affected. 

Taxpayers can deduct up to $10,000 in state and local taxes. They must choose between property taxes and income or sales taxes. This will harm taxpayers in high-tax states like New York and California.

Business Taxes

The Act lowers the maximum corporate tax rate from 35 percent to 21 percent, the lowest since 1939. The United States has one of the highest rates in the world. But most corporations don’t pay the top rate. On average, the effective rate is 18 percent. Large corporations have tax attorneys who help them avoid paying more. 

It raises the standard deduction to 20 percent for pass-through businesses. This deduction ends after 2025. Pass-through businesses include sole proprietorships, partnerships, limited liability companies, and S corporations. They also include real estate companies, hedge funds, and private equity funds. The deductions phase out for service professionals once their income reaches $157,500 for singles and $315,000 for joint filers. 

The Act limits corporations’ ability to deduct interest expense to 30 percent of income. For the first four years. Starting in the fifth year, it’s based on earnings before interest and taxes. That makes it more expensive for financial firms to borrow. Companies would be less likely to issue bonds and buy back their stock. Stock prices could fall. But the limit generates revenue to pay for other tax breaks.

It allows businesses to deduct the cost of depreciable assets in one year instead of amortizing them over several years. It does not apply to structures.

3-What changes would you make to your w4 to get benefits?

There is no changes to be made on your W4- You might not even notice when it happens because the effect on your paycheck could be relatively small, depending on your income and your tax situation.

A difference of $1,000, for instance, would be less than $40 a pop for a worker paid biweekly.Your paycheck is not actually a clear indicator of whether your overall taxes have gone up or down because of the new tax law. There may be other factors in your tax situation – such as owning a property or having multiple children – that could affect how much you owe Uncle Sam at the end of the year.

4-Pres. Trump Tax Reform: The Pros & Cons

A-People Will Get Tax Cuts

B-It cuts the corporate tax rate from 35 to 21 percent- this will stay forever, However the individual tax cut will last until 2025

Pro: Better Incentives Could Encourage Hiring & Pay Raises

Pro: Businesses Would See Tax Breaks

The Bill Is Likely to Grow In Popularity Over Time

Pro: The Stock Market Will See A Boost

Con: Some People Will See Taxes Rise Over Time

Con-  The Bill Will Likely Raise The Deficit

Across the board, Americans are likely to see some sort of tax break, though it varies widely. All income groups, on average, would get a tax cut next year, and therefore have more money after taxes: “In 2018, all income groups would see their average taxes fall, but some taxpayers in each group would face tax increases.” (The individual tax cuts are temporary, unlike the corporate tax cuts.)

If the bill becomes law, you’ll likely pay less in taxes beginning next year — but that wouldn’t last, because individual’s lower tax rates are scheduled to expire within eight years. that means that in 10 years, half of all American taxpayers would actually be paying more than they are now. So basically our kids will be affected by this .

Lawmakers Simply Don’t Know Exactly How It Will Affect Everyone

5-Tax Reform and Small Business Owners

It cuts the corporate tax rate from 35 to 21 percent- this will stay forever, However the individual tax cut will last until 2025

6-Tax Reform and Your Investments.

I really don’t have an answer for this . Because all the other topics ties in to this topic.

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