Mkuranga Now that Donald Trump has been elected as the next U.S. president, taxpayers should start thinking about tax code changes his administration could make.
According to a September analysis of Trump’s tax plan by the nonprofit Tax Foundation, some changes could affect your tax planning — if they make it through Congress. Here’s a brief rundown of what he proposed while campaigning:
- Replace the current seven tax brackets on ordinary income, which range from 10 percent to 39.6 percent, with three brackets of 12 percent, 25 percent and 33 percent.
- Replace the current personal exemption ($4,050 per individual and dependent) and the current standard deduction ($6,300 for single filers and $12,600 for married filers) with a standard deduction of $30,000 for married filers and $15,000 for single filers.
- Eliminate the Net Investment Income Tax, which is an additional 2.3 percent tax on net investment income from dividends, interest and capital gains.
- Allow an above-the-line deduction for child care costs, up to an amount equal to the average cost of care in your state, allow a tax credit of up to $1,200 for child care expenses to lower-income families and create new savings accounts for care of children or elderly parents.
- Eliminate the dreaded Alternative Minimum Tax for individuals.
Here’s how the proposed tax rates and new larger standard deductions might affect different categories of taxpayers:
- A single filer who earns $75,000 under the current rules pays approximately $11,930. Under the Trump proposal, it would be approximately $10,125, for a savings of about $1,805.
- A single filer who earns $120,000 would now pay income taxes of approximately $23,739. Under the Trump proposal, it would be approximately $21,375, for a savings of about $2,364.
- Married filers who earn $100,000 would now pay income taxes of about $12,379. Under the Trump proposal, it would be approximately $8,400, for a savings of $3,979.
- Married filers who earn $200,000 would now pay income taxes of about $38,323. Under the Trump proposal, it would be approximately $32,750, for a savings of $5,573.
Note that the highest marginal tax rate under Trump’s tax plan is 33 percent (for single filers with taxable income over $112,500 and married filers with income exceeding $225,000). That compares with current tax rates of 39.6 percent for single filers with incomes over $415,050 and married filers with taxable income over $466,950. Also of note are the various tax credits and deductions for child care expenses.
Individuals who can defer some income into 2017 and delay payment of child care costs until January might consider doing so, if you think these proposals will be enacted. Before you take any specific or irrevocable actions, remember all the “ifs” involved.
But these proposals at least now have a chance of becoming policy, so individuals and their advisers should be talking about them now.
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http://www.cbsnews.com/news/how-donald-trumps-tax-plan-could-affect-your-1040/
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