President Donald Trump is standing at the brink of what could be the biggest tax reform proposal since Ronald Reagan’s. If the rest of the Republican party concurs with the President’s plan, it would indeed revamp the tax code dramatically. However, any such significant change brings with it a great deal of anxiety. Big changes in the tax plan might affect different people in different ways. Some might benefit from it more than others.
How the Changes Might Affect You
Here’s a look at some of the ways in which the new tax laws might affect us:
- Simpler paperwork: Trump has said that a vast majority of Americans might be able to fill all of their taxes on a single sheet of paper and may not even need the services of a professional CPA. How would such an incredible feat be accomplished? Basically, by doing away with almost all itemized deductions. Some of the most popular itemized deductions are taken for education, retirement, mortgages, charitable giving and healthcare expenses. What does this mean for taxpayers? Essentially, you’ll have less money in your pocket if you can’t take these deductions.
- Bigger standard deductions: Trump’s tax plan would double basic tax breaks. So, a married couple can deduct $24,000 right off the top and a single filer can shave off $12,000 as a standard deduction. That is up from $12,700 and $6,350 respectively. This could obviously benefit some taxpayers.
- Fewer tax brackets: Currently, the IRS breaks up everyone into seven income brackets. Trump aims for three, but we still don’t know what the specific blocks are going to be. And this is where the devil will be in the details. The Trump plan calls for the highest earners to pay 35 percent, the middle bracket to pay 25 percent and the lowest earners to pay 15 percent.
- Estate taxes: In what is the biggest win for the super rich, under the Trump plan, the inheritance tax will be gone. This will not affect too many people because these taxes are only collected on estates larger than $5.5 million. This means that the rich will get to save a lot of money.
- State taxes: The new plan will also eliminate the itemized deduction of state taxes. Arizonans like residents of other states will tend to lose out on this popular tax break. A study by the New York Times shows that this favors red states that tend to have lower state taxes compared with blue states. In Arizona, between 20 and 25 percent of taxpayers claim this type of deduction.
- Corporate taxes: These would be cut to 20 percent, down from the current 35 percent. Small businesses would be taxed at 25 percent. Businesses can also write off their capital investments in anything that’s not a building.
- Alternative minimum tax: This tax, which is currently levied on households earning between $200,000 and $1 million, will be eliminated. About 5 percent of Arizona families earn more than $200,000 and will stand to benefit from this change in the tax law.
Contacting an Experienced Tax Attorney
Regardless of how the tax code changes, things are not going to get easy for taxpayers. If you are facing tax debt, you will still need an experienced Phoenix tax lawyer who can help you assess your options and get your finances back in order. Call the Pew Law Center for more information.