There’s been a lot of buzz around the Trump administration’s tax reform bill this year. Last Saturday, the buzz and rumors around the new bill became reality as the Senate introduced and narrowly passed a new tax reform bill in the early hours of the morning. So, what’s in this new bill and how will it affect Americans?
First, it’s important to note that the new bill has only passed in the Senate. A bill must pass both the Senate and the House to reach the President’s desk and become law. The House passed a similar bill last month but it was not exactly the same. So, for this new bill to become law, both the Senate and the House must reconcile the differences in these bills and pass a finalized, singular version.
There may some slight differences in the new bill when it reaches the Senate and House again but, for now, we’ll take a look at how the current bill passed by the Senate will affect Americans.
For Individuals: What changed in the new bill?
A major change in the new tax code is that the qualifications for the seven tax brackets for individuals has changed.
With these new tax brackets comes new standard tax deductions. The new standardized deduction for single filers is $12,000 for individuals and $24,000 for couples filing jointly, both of which are almost double the current standard deductions. This big increase in the standardized deduction would most likely see more Americans using the standard deduction, as opposed to itemizing.
Another big change in the new tax bill is the elimination of personal exemptions. Currently, you may claim a $4,050 personal exemption for yourself, your spouse, and for each of your dependents. This new bill eliminates this option, which could mean a greater tax burden for large families with several or more dependents.
The child tax credit, on the other hand, has been increased to $2,000 per child, up from $1,000. The requirements for this credit have also changed: now children up to age 18 (rather than 17) can be claimed, and married couples making up to $500,000 may claim the credit (rather than married couples making up to $110,000). The age change requirement is temporary; the age limit for the child tax credit will revert to age 17 in 2025.
Another major aspect of the new bill that would affect all Americans is the repeal of the individual mandate to buy health insurance. This would eliminate the penalty for not having health insurance for the full calendar year. This might result in fewer individuals purchasing health insurance, which could, in turn, increase the cost of insurance premiums.
Teachers would receive an increased maximum deduction in the new tax bill. Currently, teachers that buy their own supplies for their classroom can deduct $250 of these costs. Under the new bill, they would be able to deduct up to $500.
For Businesses: What changed in the new bill?
Much has changed for business taxes under the new tax reform bill. One notable change is the addition of a major tax cut for corporate businesses. Starting in 2019, the corporate tax rate would be reduced to 20% (down from 35%).
Under the new tax code, businesses would also be able to fully expense new business equipment for the next five years. This would be a temporary tax boon for businesses, as the law dictates this will be slowly phased out by 20% a year after the first five years of the law.
For pass-through business owners, shareholders, and partners, an increase in allowed tax deduction would be a benefit of the new tax bill. Currently, the maximum income deduction for pass-throughs is 17.4%. This would increase to 23% under the new bill. Service industry businesses are exempt from this new increase, however, unless the filer makes under $250,000 if single and $500,000 if married and filing jointly.
There’s a big win in the new tax bill for U.S. multinationals that have been deferring tax payments on their foreign profits. These companies can pay a one-time low tax rate (14.5% for cash assets, 7.5% on non-cash assets) on their existing taxable profits. Additionally, the way all multinational companies would be taxed in the future would be changed. Currently, multinational corporations owe the U.S. tax no matter where the money is made. But the new Senate bill proposes to change the tax system to a territorial system, where companies would not have to pay U.S. tax on money earned in other countries.
What are people saying about the new bill?
Many Republicans in Congress say that the new bill would help create economic growth. Critics of the bill, however, say that the bill would increase the national debt, negatively impact the middle class, and transfer money to the already super-rich. The true effects of the bill will be seen with time. We’ll be sure to keep our customers updated on all the new tax developments created by the still-developing tax laws.
At Vanguard Tax Relief, we’re passionate about providing you with the best possible tax strategies. Our dedicated tax experts stay on top of every development in tax law so we can provide our customers with tax solutions that will help them pay their lowest possible tax. Whether you’re filing your annual taxes or you have a complex tax issue you need resolving, our experts can help you pay as little as possible, quickly and painlessly. Learn more about what Vanguard can do for you at our Tax Solutions page.