Just like winter was upon Game Of Thrones this past season, the Tax Reform proposal is finally here; let's hope it doesn’t bring any white walkers with it. Now the goal is to get this implemented before the end of the year and for next year's tax season. But of course like most things this is just a bill on Capitol Hill right now #schoolhouserock. So let's go over what the proposal has in it, now there are a few highlights of the plan that include changes to income brackets, electric car deduction getting zapped, and changes in the standard deductions that we all take.
We know this can be confusing, so we here at Orca broke this down in the simplest form, we also wanted to touch on the changes that affect our readers, such as education deduction changes, and the electric car deduction. But let us start off with going through the income bracket changes.
From 7 brackets to 4 Brackets
We used to have 7 tax rates 39.6%, 35%, 33%, 28%, 25%, 15% and 10%, the new proposal will break it down to 4 tax rates 39.6%, 35%, 25%, and 12%. What does that look like? Well, below we have outlined the changes to show you if your taxes are going up, down, or staying the same. As always, the tax brackets are separated between our independent “working on myself” bracket for unmarried individuals, and what we like to call our “penguin” bracket for married couples because penguins mate for life.
Working on Myself Bracket (Unmarried Individuals)
• If you make over $500,000 your taxes stayed the same (39.6%)
• If you make between $418,400 to $500,000 your tax rate dropped by 4.6% (39.6% to 35%)
• If you make between $416,700 to 418,400 your tax rate raised by 2% (33% to 35%)
• If you make between $191,650 to $416,700 your tax rate dropped by 3% (28% to 25%)
• If you make between $91,900 to $191,650 your tax rate stayed the same (25%)
• If you make between $37,950 to $91,900 your tax rate dropped by 3% (15% to 12%)
• If you make between $9,325 to $37,950 your tax rate raised by 2% (10% to 12%)
Penguin Bracket (Married, filing jointly)
• If you make over $1,000,000 then your taxes stayed the same (39.6%)
• If you make between $470,700 to $1,000,000 then your taxes dropped by 4.6% (39.6% to 35%)
• If you make between $416,700 to $470,700 then your taxes raised by 2% (33% to 35%)
• If you make between $233,350 to $416,700 then your taxes dropped by 3% (28% to 25%)
• If you make between $153,100 to $233,350 then your taxes stayed the same at (25%)
• If you make between $75,900 to $153,100 then your taxes dropped by 3% (15% to 12%)
• If you make between $18,650 to $75,900 then your taxes raised by 2% (10% to 12%)
As you can see, the taxes stayed the same for the wealthiest Americans and lowered slightly for the ones in the “Middle Class” as well as the “Upper Middle Class”. Overall, it affects our new workforce getting their first job out of college in a good way as the average salary falls within the bracket that dropped by 3%.
But these brackets are just the a small part of the entire Tax Reform proposal, simplifying the income tax bracket is the appetizer to all the reforms that are coming. Below we have highlighted some of the other major changes that we believe us Orca’s would care about:
Estate Tax: A tax put on the inheritance that is passed down from one generation to the other, the changes really only affect the top 1% of Americans
Current: 40% on anything above $5.49 million
Proposed: 40% on anything above $11.2 million and goes to 0% in 2024
Student Loan Interest Deduction: Borrowers can deduct when paying student loans
Current: Up to $2,500
Proposed: GONE
Capital Gains (Long Term): Stays the same 15%, 20%, and 23.8% (for top earners)
Alternative Minimum Tax: The minimum amount a wealthy individual has to report on their tax returns
Current: Stops high earners from taking the standard deductions
Proposed: GONE
Electric Cars: Credit given to consumers of ALL electric vehicles, sorry Elon
Current: $7,500 credit for qualified vehicles like Tesla
Proposed: GONE
Lifetime Learning Credit: Offsets your education expenses
Current: 20% of the first $10,000, so up to $2000 and can be used for as many years
Proposed: GONE
Standard Deduction: Most common deduction any American can take
Current: $12,700 for married and $9,350 for single
Proposed: $24,400 for married and $12,200 for single
Personal Exemption: Every taxpayer gets to report this against their personal income
Current: $4,050
Proposed: GONE
Child Tax Credit: Credit you receive for dependents you claim on your tax return
Current: $1000
Proposed: $1600
State and Local Taxes: This allows you to deduct real estate taxes, as well as local and state taxes
Current: Itemized deduction
Proposed: Deduction capped at $10,000 for property tax only
Mortgage Interest Deduction: Deductions you can take based on interest payments on your mortgage
Current: Itemized deduction on loans up to $1 Million
Proposed: Itemized deduction on loans up to $500,000
Charitable Donations: Donation that is made to charitable organizations
Current: Itemized Deduction
Proposed: No changes
Retirement Accounts: Your 401K or other retirement accounts
Current: $18,000 deduction
Proposed: No changes
These are some of the quick highlights of the tax reform bill that has been proposed today, and we expect changes to be made before it is finalized. We here at Orca will go to the depth of the bill and any changes to update you on what is going on and what it means to you, subscribe below to our newsletter.
