The plan, very similar to what he proposed during his campaign and earlier this year, calls for a zero tax bracket by doubling the standard deduction and reducing the number of tax brackets from seven to three.
That means that if you’re in the low to middle income category, you could end up with ZERO taxes and a larger refund. Doubling the standard deduction to $12,000, or $24,000 if married filing jointly, allows the almost 70 percent of taxpayers who use the standard deduction to decrease the amount of taxable income significantly. This can ultimately put more taxpayers into a “zero tax bracket.”
In addition, the Child Tax Credit changes include making the first $1,000 fully refundable and that can mean more refund for taxpayers. Finally, there is a proposed $500 tax credit for non–child dependents to help defray the cost of caring for other dependents, such as a parent. This could add up to real benefits for many moderate and low income taxpayers.
While the proposal is called a simplification, some of it is not so straight forward come tax day.
Personal and dependent exemptions are to be eliminated, which adds a layer of confusion and complexity not seen in recent history. Additionally, eliminating Itemized Deductions, including the state income tax deduction, could be a big issue for taxpayers in high state income tax states like New York and California. A big win for homeowners and charitable taxpayers is the proposal to continue a deduction for mortgage interest and charitable donations.
Reducing the number of brackets is more streamlined, but we don’t know where those brackets will land and the overall impact. There are likely to be winners and not winners depending on the details.
Right now, the proposal is just that, a proposal, and not law. As legislators and lobbyists hash out the details, we will see where we land.
I don’t see this taking shape to effect 2018 tax filing season but it’s possible to impact 2019 and it’s unclear whether any of these changes would be implemented retroactively – impacting past filings – and part or all of 2018. For now, unless something big happens, your 2017 tax return should be under current rules – but stay tuned in and watch close. Anything can happen in next 90 days.
Most importantly, consult a Tax Pro about your specific situation to make sure you’re getting the most from your return.