With the passage of the new tax law in December 2017, many people across the country are wondering how they will be impacted by these changes to our tax code. Some people will pay more, others will pay less. Some effects are temporary, others are permanent. Some things became more complicated, while others are now simpler. Tax Plan Answers provides everything you need to know about the new tax plan, answering frequently asked questions, exploring the impacts of the new law on individuals, small businesses, and corporations, and providing a list of resources for more in-depth reading.
That’s a great question, and unfortunately the answer isn’t simple. It depends on who you are, what you do, how you earn your income, how many children you have and how much money you make. Many moderate income Americans who earn wages or a salary for a living will receive a modest tax cut this year, but then their taxes will go up in future years. Some people will pay more in taxes right away. On the other hand, very wealthy individuals are likely to enjoy large and persistent tax cuts. By 2027, 53 percent of Americans will have to pay more taxes because of this law.
If you’re a small business owner, the impact is also complicated. It will take time – and likely the help of an accountant – to figure out exactly how the new law applies to you. There is a new tax break for certain kinds of business income, but there’s also a chance that your type of business income does not fit exactly into the eligibility restrictions.
If you are a major shareholder or an executive of a large corporation like Walmart or Comcast, you will benefit greatly from this tax law. Under this new law, the corporate tax rate went down 40 percent – from 35 percent to 21 percent – and corporations are taxed less on profits made overseas. On top of all that, all the changes this tax law made to the corporate tax code are permanent, so the benefits to corporations don’t disappear in eight years.
Bottom line: it’s complicated, but most families will eventually pay more in taxes.
Health care and taxes are intimately connected in this law. The new law eliminates the requirement that everyone maintain health insurance, which will mean that roughly 13 million fewer people will be insured and health insurance premiums may rise by an extra 10 percent each year. If you receive your health insurance through your employer, the most likely effect is an eventual increase in health care costs to you. If you purchase your health insurance yourself, your premiums will go up right away.
Yes, many deductions that families rely on were eliminated or reduced under the new tax law, including the ability to fully deduct the cost of the interest on their mortgage payments, or the full cost of their state and local property tax, or the ability to deduct the cost of rebuilding after a fire destroys your home. However, many other deductions and other tax benefits remain in place. The deduction for charitable giving, for example, was not directly affected, though many fewer people will take it now due to the larger standard deduction. The new law also maintains the separate lower tax rate for investment income – income from the sale of stocks and other capital assets.
For the most part, this tax overhaul did not fundamentally simplify our system. You will still file taxes the same way you did before. You will still need to fill out the same forms, and there will still be choices you will have to make. For some people, however, the larger standard deduction will make doing your taxes a bit simpler. But for others, the law is likely to be more complicated.
This new law closes some loopholes, but it doesn’t touch others, widens some, and creates entirely new ones for some taxpayers. Because of the drastic overhauls of the corporate and international code, and the elimination of a lot of key deductions, many people will need to spend more time (and likely more money) preparing their taxes.