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How the New Tax Plan Will Affect You

United States President Donald Trump signed into law the Tax and Jobs Cut Act last December 22, 2017. The law’s provision reduces the corporate tax rate from 35 down to 21 percent beginning this January. It also decreases individual tax rates to 37%. In essence, the Tax and Jobs Cut Act achieves three goals:

  • Cuts down income tax rates
  • Multiplies standard deductions by two
  • Eliminate personal exemptions

The corporate cuts become permanent. Individual amendments terminate by the end of the year 2025. Millions of American citizens have conflicting opinions and comments about this piece of legislation. However, some people see the most significant revision of the US individual and corporate tax system in the last three decades in this perspective. It provides massive tax reductions to developers, banking institutions, and the oil sector thereby promoting more the interests of business owners.

Tax Classifications and Standard Deductions

This legislation maintains the seven income tax categories but reduces the tax rates. The workforce can view adjustments in withholding taxes on their February wages. The 2017 rates revert to the original tariff in 2026. The deduction of an individual (Single Category) multiplies from only $6, 350 to $12, 000. For married couples and joint filing, the figures increase from $12, 700 to $24, 000.

You can expect more than 90% of taxpayers to opt for the average deduction which goes back to the present level eight years from today. However, reports pointed out that the National Association of Realtors, as well as the National Association of Home Builders, opposed this law. Fewer consumers will adopt the mortgage interest cutback by taking on the standard deduction. It lowers housing costs although the real property market remains in a bubble (run-up of prices) that could lead to a probable meltdown.

Personal Exemptions

The Tax and Jobs Cut Act abolishes personal exemptions. Before the passage of this statute, taxpayers took away $4, 150 from income for every claim. Henceforth, households with many kids pay higher taxes notwithstanding the augmented standard deductions. This latest enactment gets rid of nearly all itemized deductions including relocation expenditures. Only members of the United States armed forces remain exempted. You can no longer subtract payment of child support, but recipients can still deduct the alimony. Divorces granted this year can avail of the deduction beginning 2019.

This decree maintains deductions for interests in student loans, charitable donations, and individual retirement savings. It puts a cap on cuts for mortgage interest to the initial $750, 000 of the investment. You can no longer withhold interest on lines of credit for home equities. Nonetheless, the ruling does not impact Americans with existing mortgages. At the same time, taxpayers can now deduct a maximum of $10, 000 in local and state taxes. As a taxpayer, you must choose between the property, sale, or income taxes.

The law rescinded the Obamacare tax for citizens who do not have health insurance coverage in 2019. According to the Congressional Budget Office, around 13 million Americans will discontinue their plans without the authorization. The government, in return, saves about $338 billion as it will no longer answer for subsidies. However, health care expenses will inevitably increase with fewer people getting the necessary preventative care. Finally, the Tax and Jobs Cut Act boosts two times property tax exemption to $11.2 million for single taxpayers and $22.4 million for spouses.

Perceived Effects of the Act

Popular opinion of many Americans indicates that the redrafting of the United States Tax Policy favors enterprises more than the ordinary citizens. Business tax cutbacks become permanent. Individual reductions last only up to 2025. The decree boosts high-income families more than those belonging to the lower and middle-income groups. It makes the country’s growing income tax more in reverse. Taxpayers with the highest earnings benefit most from reduced tax rates.

The rise in the standard deduction favors roughly six million taxpayers (47.5% of people who file income taxes). It does not cancel out lost deductions. In fact, the Congressional Joint Committee on Taxation stated this law raises the shortfall by $1 trillion during the next ten years. At the same time, it increases growth by 0.7% every year and reduces a portion of the revenue loss from the $1.5 trillion tax decreases. Meanwhile, the Tax Foundation asserted the Act adds nearly $448 billion to the shortage over the next decade (2028).

According to officials of the United States Treasury, the legislation generates approximately $1.8 trillion in additional earnings with an estimated growth of 2.9% annually on the average. The government agency’s report assumes the government will implement all stipulations in President Trump’s program. The bearing on the country’s $20 trillion national debt will go beyond projections.

An upsurge in sovereign debt dulls economic progress in the long-term. Investors consider this development more as a tax increase on future generations. A World Bank study discovered each percentage point of arrears costs the United States around 1.7% in growth. Many conglomerates affirmed not using tax reductions to create employment opportunities for the jobless. Ironically, the corporate tax cuts will not generate opportunities and only increase stock prices.

The truth remains. Hefty tax cuts must benefit the working middle class who will most likely spend every cent earned. Rich people use these deductions for investments or savings which boosts stock markets but fail to spur demand. Tax cuts for the middle class produce more jobs. The most effective remedy for unemployment should be government spending that will develop infrastructure and create work opportunities directly.

This new version of the Tax and Jobs Cut Act restricts the capacity of private corporations to minus interest expense at 30% of income. From 2018 up to 2022, salary depends on the principle of Earnings before Interest, Tax, Depreciation, and Amortization (EBITDA). The move makes it more costly for financial entities to borrow. Corporations will refrain from issuing bonds and reacquire their stocks. Stock prices will likely decline, but the threshold or cutoff point generates earnings to settle other tax breaks.

Now that you have read through the ins and outs of the Republican tax law, you can decide if it favors the majority of the American people or not.


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Easy Ways to Save on Your Taxes


Resourceful taxpayers will always look for strategies to reduce yearly tax obligations. You should see the positive side. Many options remain open for Americans hoping to cut back on taxes or probably add to the number of refunds without breaking the rule of the Internal Revenue Service (IRS). Remember the revenue agency modifies its policies time and again, so deductions and credits also vary.

Know the Fundamentals

Ignorance of how things should work can cause you problems in the long run. To avoid this predicament, learn the essentials of federal tax legislation which includes saving tips. By claiming more deductions, you can get more refunds once the tax year ends. Spouses who get married or have a new baby also qualify for extra tax breaks. The government allows certain concessions like expenses taken away from gross income to lower taxable earnings. Other often- ignored tax cuts consist of deductions from the following:

  • Relocation expenses
  • Transportation costs while doing volunteer work
  • Payments in looking for employment
  • Charitable contributions

Eligibility for Earned Income Tax Credits

This type of credit benefits taxpayers with low and moderate incomes. The IRS laid down the guidelines for taxpayers who can claim Earned Income Credits:

  • Receive regular earned income
  • United States citizen or resident alien for the whole tax year
  • Hold a valid Social Security Number for the taxpayer, spouses (for joint filing), and qualifying dependents on your returns
  • Investment income must no go beyond $3, 450
  • File a tax return with the following status: Married (filing together); Single; Head of Household; or Widower even if the IRS does not require you to submit returns.

Contribute to Individual Retirement Accounts

Pay contributions to your Individual Retirement Account (IRA) or 401K. The tax due depends on adjusted gross income (AGI). You need to make adjustments, or you owe the government more. Reduce the overall amount by depositing pre-tax contributions into tax-deductible IRA. You decrease AGI as well as the amount you owe (taxes) by increasing contributions to your 401K. Two years ago, maximum 401K and Individual Retirement Account contribution limits consisted of $5, 500 and $18, 000 in that order for taxpayers (49 years old and below).

Anybody with age 50 years and above can add $1, 000 to the IRA cap and $6, 000 to the 401K ceiling. You do not pay capital tax gains while your money grows annually. The IRS does not require payment of income tax on any money withdrawn from these accounts. However, you fall under a lower income tax category upon retirement. Thus, you pay a reduced rate on these withdrawn funds.

Save for Retirement

Think short-term. Increasing your retirement contributions voluntarily while getting a lower take-home pay can disrupt your finances. Nonetheless, you get a couple of benefits from this approach. First, you augment retirement benefits. Second, you bring down tax burdens. The money you channel into specific retirement accounts means tax deductions with certain limitations.

Fund your Flexible Spending Account

Take advantage of the Flexible Spending Account (FSA) that employers offer to reduce your tax payment. The Internal Revenue Service permits channeling of tax-free USD from your paycheck directly into your FSA annually. Last year, the IRS-prescribed limit reached $2, 600. This year, the threshold increased to $2, 650. However, you need to spend that money during the current calendar year for medical and dental bills, daily first-aid stuff, pregnancy testing kits, acupuncture (needle treatment), or breast pumps. Your dependents also qualify. In fact, individual employers allow employees to carry a maximum of $5, 000 to the following year.

Funding for Dependent Care FSA

The DFCSA refers to a pre-tax benefit account for paying off entitled dependent care services including pre-school, summer camp, (before or after) school programs, and child or grownup daycare. This employer-sponsored scheme also reduces your tax bill. The IRS excludes a maximum of $5, 000 from your pay that the employer will redirect to the Dependent Care account. It benefits parents with children below 13 years of age. Make sure to check out the plan’s documents carefully.

Use Health Savings Accounts

Health Savings Accounts stand for tax-exempt programs utilized in paying costs of hospitalization. You can ease your tax load if you own a high-deductible health care policy by contributing to the HSA. All contributions qualify for tax reductions with tax-free withdrawals provided you earmark them for authorized medical expenditures. Last year, the ceiling for contributions stood at $3, 400 for the self-only, high-deductible health cover. The cap for 2018 increased to $3, 450. For family coverage, the 2017 rate stayed at $6, 750 and rose to $6, 900 this year. Many employers offer the HSA, but you also have the choice of opening a private account in an accredited bank.

Become a Full-Pledged Entrepreneur

You can also save on taxes by starting your enterprise. Business owners can control their tax payments. If you are an entrepreneur, you may keep more funds in the company instead of declaring the money as revenues. Business proprietors also consider specific activities as expenditures. Tax specialists offer services to assist startups or small enterprises in dealing with the rules of the IRS on certified expenses. Neophytes will need professionals to guide them through the long and tedious processes. Part-time or outsourced work provides substantial tax deductions for the following:

  • Office supplies
  • Vehicle mileage
  • Computers
  • Phone services
  • Internet access
  • Business travel and meals
  • Part of home utility bills

The Broad Objective

Look at the bottom line with the magic words being SAVINGS and TAXES. Try to prepare your tax returns instead of hiring an accountant or bookkeeper unless you have a flourishing business with lots of requirements and financial concerns. You can save a great deal by performing this function than pay another person. Besides, you need not get stressed about things like beating tax filing deadlines. Review the guidelines for the Internal Revenue Service published online. You will surely learn plenty of tips from the agency’s website.