[Illinois Taxteam] Trump Tax Plan

In November 2017, the House passed the Tax Cuts and Jobs Act, and then President Donald Trump signed the tax bill into law on December 22, 2017. The changes come into effect from January 2018, but they will not affect the 2017 tax filing in April 2018.

The Tax Cuts and Jobs Act was originally designed to reduce the number of tax brackets in the federal income tax system from seven to four, but the final version of the bill maintains the seven brackets. However, the tax reform bill reduces the tax rates to 12%, 25%, 35%, and 37%. The number of brackets and the tax rates have been a point of negotiation as Congress tries to reconcile the House and Senate versions of the tax bill. Nevertheless, this change does not do much for the middle class, because the highest proposed tax rate, 37%, would apply to single taxpayers with an income threshold of $500,000 and to married couples earning more than $600,000. Under the current income tax brackets, the highest rate of 39.6% rate kicks in for single taxpayers earning about $418,000 and for married couples earning about $471,000.

Besides the number of tax brackets and the tax rates, there are several more changes that are worthy of notice. The Trump tax plan increases the standard deduction to $12,000 for individuals and $24,000 for married couples filing jointly. Compared to the past standard deduction, which is $6,350 for individuals and $12,700 for married couples, the standard deduction is nearly doubled under the new tax bill. As a result of the surprising increase in tax deduction amount, it can be expected that 94 percent of taxpayers in America will take the standard deduction in 2026.

In addition, the tax reform bill brings about considerable changes to several aspects of the federal tax system. It eliminates personal exemptions, which allowed taxpayers to subtract $4,150 from income for each person claimed. Therefore, despite the increased standard deductions, some taxpayers with many children should pay higher taxes than before the Act. Also, the Act limits the mortgage interest deduction up to $750,000, increases the child care tax credit from $1,000 per child to $2,000 per child, and lowers corporate tax rate from 35% to 21%.

Written by YeonSuh Sung (Tax Advisors for Champaign Society)

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[Illinois Taxteam] Trump Tax Plan
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Tax Advisors for Champaign Society