The Republican Party has announced its tax reform proposals and the reforms would mean some major changes to the tax code for both individuals and businesses.
The future of tax reform is uncertain as some Republicans have already said they are unwilling to vote for the plan for various reasons ranging from concerns about what the tax cuts will do to the deficit to problems that representatives have with what the changes will do to their constituents’ tax rates. However, the Republicans are eager for a legislative win and they need just 51 votes in the senate to pass reforms through reconciliation so there is a good chance that something close to the proposed reforms will occur.
A Maryland tax lawyer can provide help to individuals and businesses in planning for tax reform, in understanding their new obligations under the tax code, and in taking steps to ensure they’re not overpaying in taxes. Those who are concerned about the impact that reforms could have on their budget can find out some of the key details of the proposed changes here.
How the Tax Reform Plan Would Change the Tax Code
The tax reform plan put forth by the GOP would collapse the number of tax brackets. There are currently seven different tax brackets ranging from a 10% tax bracket to 39.6% tax bracket. The new plan would have a 12% tax bracket kick in at $24,00 and there would also be a 25%, 35% and 39.6% tax bracket. Under the revised plan, the 39.6% bracket would not kick in until household income had reached $1 million whereas currently taxpayers with incomes of $480,000 or higher pay at the higher rate.
The tax plan also roughly doubles the standard deduction, which Republicans believe would encourage more taxpayers to just take the standard deduction rather than itemizing their returns.
However, while they are increasing your standard deduction, they are eliminating the $4,060 personal exemption which you can currently take for each household member. This means that larger families could actually see an increase in their taxes because the new standard deduction would not be large enough offset the loss of their personal exemption. Tax payers with incomes under $230,000, however, would still be eligible for a $1,600 per child tax credit as well as a $300 credit for non-child dependents and taxpayers.
The reform plan also changes or eliminates other deductions, including capping the mortgage interest deduction for new mortgages; eliminating the ability to deduct state and local taxes except for up to $10,000 in property taxes; and repealing the estate tax.
As far as corporate tax rates, the plan would lower the rate from the current 35% down to 25% but some pass-through companies would only be able to claim a small percentage of their income at the new lower rate.
To find out more about the tax reform proposals or how you can plan for its passage, you should contact US International Tax Advisors today.
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