Last week, House Republicans unveiled a tax-overhaul plan that would be the biggest tax code rewrite in three decades. It would also affect virtually all Americans, so it’s critical for everyone to know what’s in the plan.
Called the “Tax Cuts and Jobs Act,” the package calls for sharply lower rates for corporations and reduced personal taxes for many people with fewer deductions for those who buy a home, owe student loan money, or have steep medical bills. If passed, the plan would also alter the current personal income tax brackets.
What’s in the package?
One of the primary goals of the plan is to cut the corporate tax rate from 35 percent to just 20 percent in order to make doing business with America more attractive to other countries.
The plan would also shorten the number of individual income brackets. According to an article by the Associated Press, today’s seven personal income tax brackets would be cut to four: 12 percent, 25 percent, 35 percent and 39.6 percent.
- 25 percent rate: start at $45,000 for individuals and $90,000 for married couples
- 35 percent rate: family income over $260,000 and individual income over $200,000
- 39.6 percent rate: income of $500,000 and $1 million
The standard deduction (used by about two-thirds of taxpayers) would nearly double to $12,000 for individuals and $24,000 for couples. Those backing the plan are hoping more people will be encouraged to use the standard deduction with the new, simplified, postcard-sized tax form.
The new package would keep the same 401K rules and it would phase out estate tax, which is taken when property is transferred after someone dies.
The bill would increase the child tax credit from $1,000 to $1,600 for any child under 17. A CNN article notes that the $600 increase won’t be available to the lowest-income families if they don’t owe federal income taxes, however.
What happens now?
Lawmakers are getting together to edit the drafted plan. They’re hoping for a quick turnaround, however — GOP leaders have said they would like to have an official plan passed before Christmas.
This new proposal is just another reminder of why it is valuable to have a financial planning expert in your life. At Milestone, we work with attorneys and individuals who have received settlements from litigation, guiding them in tax strategies that are most beneficial to them and their family, and for the long-run.
A West Point graduate where he served as captain and military aviator, John Bair continues his commitment to our country through his efforts within the settlement planning industry. He has represented families of victims lost in the Flight 3407 crash, offered pro bono services to the families of 9/11 victims and drafted the first consumer protection bill for plaintiffs (H.R. 3699).