If you are the average person earning a minimum estimate of $40,000 a year here is what the new tax reform will mean to you. The main effect would be an increase in the amount of tax you would pay. Reason being that, the elimination of various deductions consequently increases the taxes you end up paying. On a better note the tax plan requires money held overseas to be brought back in the country, specifically more than $2 trillion. If this happens employment for the average American will increase so will the state’s investment. Here is a look.
The base rate will decrease significantly. It will be reduced by more than half. Lets’ say you earn between $0 to $45,000 your tax rate will be 12%. Above $45,000 the rate increases to 25%. The rich also included as part of the base stand to benefit a lot through a tax saving that will cost the state $1.51 trillion in the next twelve years.
Taxes are not just about the income, other aspects involved are deductions and credits. Federal taxes depend on deductions for various reasons. Such as; students loans, credits for the number of children etc. This plan will make a huge change for deductions. The most important would be decreasing state taxes deductions for the young. Therefore, if you live in a state with a huge number of young people, you probably will feel the greatest impact. This plan will also allow you to take deductions for taxes you pay in personal property taxes, state taxes, real estate taxes, and local income taxes. What this means is that, the federal government will tax your income considering the taxes you pay to state and local governments. The bill suggests that, deductions be applied to local property taxes and state taxes but not on sales or income taxes.
The tax amount you would pay will have a slight change, however you probably have to pay more depending on your place of residence and the state of your life. If a person earns $25,000 the same bracket as one who earns $40,000, the former will save $178. This is exclusive of the modifications made on local and state taxes. Inclusive of these modifications you would end up paying more.
Known as the Tax Act and Job Act, the proposal sets to reduce tax bracket from 7 to 5, immediately cutting corporate tax by 20% and doubling standard reductions for individuals and married duos in exchange for eliminating and limiting several popular deductions. However, there are many details to be worked on and the bill has to be passed to law.