The massive tax cuts on Trump and GOP-backed reform bill now in full effect this February 2018 has its perks and removed privileges.
Here’s 7 key changes that will affect you down the line wherever you are in the USA.
1. Eliminate tax rates for real property
Do you live in California or New York? And do you happen to have a real estate property there? Do you live in any blue states? Well this bad news should concern you.
High tax states (that are normally Democratic states) will carry the burden because the deductions are now capped.
Local and state property taxes are now capped at $10,000 while mortgage is now down to just $500,000 from $1M.
2. Increased wages
IRS has now implemented the new withholding guidelines but the actual increase will largely depend on a lot of factors so it’s not uniform. The increased wages are said to be a direct effect of huge tax cuts for corporations where most Americans work.
3. Mandatory Obamacare tax now gone
The much talked about Obamacare mandate has been repealed for those still without insurance in 2019. Estimates of up to 13 million Americans are to likely drop their health plans saving the government billions in subsidy payment but this would likely make health care cost rise especially for preventive care.
4. Improved deductions but significant repeals
- Medical deduction is now 7.5% or more of income.
- Retained deduction for charitable contributions, student loan interests, and retirement savings.
- Doubled standard deduction which can improve housing prices
- Child and dependent care tax credit remain unchanged.
- Deductions on mortgage interests are now limited to the first $750,000 of the loan amount.
- Itemized deductions like moving expenses and alimony payers cannot deduct it anymore.
- Property casualty loss
- Personal exemptions of up to $4,000+ per person is removed
- Commissions above $1 trillion are now de-facto taxed for corporate executives
- Sales taxes can’t anymore be deducted
5. It can still be repealed
No tax reform bills will remain permanent acts if they increase deficits in government in the long-term. The GOP-initiated reform is expected to increase deficit up to $1 trillion.
It will most likely get repealed if a Senate rule-compliant bill could pass in the future.
6. Territorial system will affect tech companies.
Working at Google or Apple? Then read below.
Our country has a worldwide tax system where multinationals are taxed any income incurred overseas but don’t pay it unless profits are brought back home.
With the territorial system, there are no taxes on foreign profit.
It arguably ensures that companies will reinvest back in the country because there are no discouragement to how much and where it could be placed back home.
Other experts argue that with the territorial system though, tax avoidance and offshoring will become more rampant.
But advocates believe it will help add more jobs and attract companies with foreign revenues to bring those back for more American workers to benefit.
7. Individual tax cuts expire, while corporate cuts are permanent
Expiration is due 2025 but corporate cuts remain permanently. Overall, 61.4 percent of taxpayers will have an average cut of up to $2,410 while 24.2 percent see their taxes go up, by $2,080 on average.
And not just that, higher income families will get the biggest cut since they also get the most reductions.
In the end, it’s not all rainbows and butterflies when it comes to the latest tax reform in about 3 decades but it’s here and all we can do is comply and learn hand in hand while we all do the filings.