The New Trump “Tax Cut” Act is here and it’s tax time! Who are the winners, and who are the losers?1
“They giveth with the large print and they taketh away with the small.”
– Tom Waits
Let’s examine how individuals fared under the New Act.
Consider Mr. & Mrs. X, a typical married couple filing jointly. They make $200,000 per year2. What “tax cut” can they expect under the the Tax Cuts and Jobs Act?
Their tax rate will go down from 28% to 24% which will save them $8,000. This is roughly the average tax cut for individuals. However, if they made slightly over $400,000 their tax rate would increase from 33% to 35%.
They get another benefit as well because the Standard Deduction was increased from $12,000 to $24,000.
There are also hidden “tax increases” for Mr. & Mrs. X:
- Their deduction for “personal exemptions” of $8,100 is eliminated.
- They no longer can itemize deductions.
- Their state and local tax deduction is capped at $10,000.
- And Mr. X will lose his alimony deduction for payments to his ex-wife.
How did corporations and small businesses fare in comparison to individuals?
In our last newsletter we awarded the First Place Award to Corporations and the Second Place Award to Small Business (read article). Corporations received “tax cuts” of 14% and LLC’s and “small businesses” received tax cuts of 10% through a 20% of “net profits” deduction. Singled out for Special Recognition were architects, engineers and real estate professionals because under Section 199A they have no limits on their business income and no phase-out of their 20% deduction like other professions.
Mr. & Ms. X finished in a disappointing 3rd Place. Corporations and small businesses benefited the most from the New Act. Individuals received “Historic Tax Cuts” but with the “hidden” tax “increases” and fewer deductions, Mr. & Mrs. X ended up paying for the revenue lost from the Corporate and small business “tax cuts”.
Questions or Comments – If you have any tax or estate planning questions or concerns please feel free to contact us at (360) 876-6425.
- The Tax Cuts and Jobs Act of 2017 (the “New Act”)
This is their “taxable income” after deductions.