The Tax Cuts and Jobs Act, dubbed as a simplification proposal, is anything but simple. The President and his administration have been pushing the massive tax overhaul as a plan aimed at helping the working middle class. The administration and congressional Republicans describe this tax plan as a key ingredient in the recipe for faster economic growth by reforming the tax code. While both the House and Senate proposals double the standard deduction, lower tax rates across the board, cut the corporate tax rate to 20 percent, and eliminate some other deductions, they both contain other elements that favor the hardest working Americans.
Some of the components are:
- Increasing the child tax credit to $1,600 per child aged 17 or under for families earning up to $110,000 ($230,000 if married filing jointly) from the House and to $1,650 per child aged 18 and younger from the Senate for families earning up to $1M ($1.2M if married filing jointly)
- The House proposes to eliminate all education credits and deductions except the American Opportunity Tax Credit while the Senate proposes to preserve the current educational credits and deductions, including the Student Loan Interest deduction Lifetime Learning Credit for graduate students
- The House proposes up to $10,000 to deduct property taxes while the Senate proposes to eliminate both state and local tax deductions
- The House proposal has four brackets with the top one unchanged from current levels at 39.6 percent, while the Senate version maintains seven tax brackets, with the top bracket’s rate at 38.5 percent
- The House proposes to eliminate the adoption tax credit while the Senate plans to preserve the one-time tax credit of $13,570 per child
- Bottom tax rate proposed at 12 percent by the House while the Senate would like it to remain at 10 percent
- The Senate supports preserving most mortgage interest and medical expense tax breaks
It remains to be seen how (or if) the two chambers can close the gap in in their proposals during the upcoming weeks.
More and more, I find myself reminding people that in America, our policies are complex and the US tax system is designed to support our policies – our way of life – that’s not easy, and so taxes are complex. Everyone, even me, wants simplification, but given the option between simpler or fairer, I choose fairer. The price of that fairness, though, is a bit of complexity. At the end of the day, even with the complexities, our tax laws are usually fair and reasonable –they help all Americans contribute what they can to preserve our way of life.
With these changes, hardworking Americans will need professional tax preparation services more than ever to assist in navigating the changes and finding every credit and deduction available. Everything depends on your specific situation. You cannot take just one piece of the proposal and say it is good or bad; it must be taken as a whole. Talk to a Tax Pro to help you understand the nuances of the “simplification proposal” and maximize the deductions, credits, and refund available to you. Remember, after all is said and done, you should do everything you can to keep more of your money. One way to do that is to get all the tax breaks you deserve. Simple, right?