As Congress works towards passing the most massive tax cuts since Reagan, there’s a lot of fake information floating around on Facebook about how it will affect the average individual, family and small business. Here’s the breakdown of how the final tax relief bill will really affect you as released by the House and Senate Conference Committee.
How it Affects Individuals and Families
- Lowers individual taxes and sets the rates at 0%, 10%, 12%, 22%, 24%, 32%, 35%, and 37%
- Increases the standard deduction from $6,500 and $13,000 under current law to $12,000 and $24,000 for individuals and married couples, respectively
- Allows people to write off the cost of state and local taxes – up to $10,000
- Expands the Child Tax Credit from $1,000 to $2,000 for single filers and married couples. The tax credit is fully refundable up to $1,400 and begins to phase-out for families making over $400,000
- Preserves the Child and Dependent Care Tax Credit
- Preserves the Adoption Tax Credit
- Mortgage interest deduction: For all homeowners with existing mortgages that were taken out to buy a home, there will be no change to the mortgage interest deduction. For homeowners with new mortgages on a first or second home, the home mortgage interest deduction will be available up to $750,000.
- Expands the medical expense deduction for 2017 and 2018 for medical expenses exceeding 7.5 percent of adjusted gross income, and rising to 10 percent beginning in 2019.
- Continues and expands the deduction for charitable contributions
- Eliminates the individual mandate penalty tax in Obamacare
- Maintains the Earned Income Tax Credit
- Allows families to use 529 accounts to save for elementary, secondary and higher instead of just college.
- Exempts the value of reduced tuition from taxes for graduate students
- Retains popular retirement savings options such as 401(k)s and Individual Retirement Accounts (IRAs)
- Increases the exemption amount from the Alternative Minimum Tax (AMT)
- Doubles the exemption of the Death Tax
How it Affects Businesses
- Lowers the corporate tax rate to 21% (beginning Jan. 1, 2018) – down from 35%
- Offering a first-ever 20% tax deduction that applies to the first $315,000 of joint income earned by all businesses organized as S corporations, partnerships, LLCs, and sole proprietorships
- For businesses with income above this level, the bill generally provides a deduction for up to 20% on business profits, reducing their effective marginal tax rate to no more than 29.6%