Updated info since the Senate bill passed in the early hours of Saturday, December 2.
Drama in Washington continues, but I’ll focus on the outcome of the new tax bill. The Senate and House bills need to be reconciled, and a final version signed into law. It is anticipated that the new law will become effective for 2018.
The Wall Street Journal posted a good article called “How Households Win and Lose in the House Tax Bill”. I will share with you some of what I learned. You are probably listening to the news, as I am, and trying to determine how much of what President Trump is saying is truth. Is the proposed tax cut going to help middle income America or will it mostly benefit high income tax payers?
The answer is that households who take the standard deduction and have median income will get a reduction in tax. Business owners could see a reduction in tax. Families who itemize deductions including state income tax and medical expenses will see a big increase in their tax bill for 2018.
Here are some examples provided in the WSJ article:
Median Household with $59,000 adjusted gross income will pay less taxes. enter The standard deduction will increase, and credits will increase. For 2018 this household will pay $1,100 less in federal tax. The standard deduction will double and personal exemptions will be eliminated. This change will benefit individuals and couples with lower incomes who do not have a mortgage. The child credit increases from $1,000 to $2,000. However, since taxpayers lose the personal exemptions the child credit increase will only benefit lower income families.
High income wage earning household with $600,000 in adjusted gross income will get a reduction in their federal tax bill. This is because the Senate plan go to link reduces the highest federal tax bracket from 39.6% to 38.5%.
Small business owners with pass-through income could see a drop in their federal tax due if they are currently in a tax bracket of 28% or higher because the http://ocvocations.org/?sccss=1 tax rate on pass-through income will be reduced to 25%. The Senate bill approved a 23% deduction on income from S Corps and Partnerships passed through to individual owners.
A middle income professional earning $100,000 in Oregon will see an increase in the federal tax liability due to the elimination of the state tax deduction. The effective tax rate for this professional will increase for 2018. A last minute changed allows the deduction for state income tax up to $10,000. This was a concession added in the margins of the new bill and will help provide relief for low to middle income taxpayers who itemize deductions. Oregonians with taxable income over $100,000 will still lose some of the deduction for state income taxes paid.
Families with a high amount of out-of-pocket medical expenses will feel some additional pain. Under the current tax code, out -of-pocket medical expenses are deductible when they exceed 10% of adjusted gross income. The House GOP plan would eliminate the medical expense deduction. This is another provision that was changed in the final bill. The deduction for medical expenses was restored temporarily for 2018.
The individual mandate to have health insurance was removed by the Senate bill, but the House bill does not remove this health insurance penalty.
Corporate tax rates for C Corps will be reduced from 35% to 20%. This is a big change that will make most business owners currently taxed as S Corps to consider a change to taxation as a C Corporation.
We will continue to watch as things develop so that you are informed about how the changes affect you.
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