Taxes and the New President
Now that the election is over and a new president will take office in January, political and economic pundits are spinning their wheels, trying to project what will happen in the coming years, especially now that Republicans have control of the White House and Capitol Hill.
With regard to taxes, some think that 2017 could be one of the most influential tax reform years in history. “We might be about to have the most consequential tax policy year since the Second World War,” said economist Kevin Hasset, former advisor to Mitt Romney.
The ex-Fed economist went on to say, “If I run the numbers, I think the dollar's 20% stronger. I think you have a wave of inversions, because foreign companies want to have their headquarters in the U.S. It's a really, really big change.”
According to analysis by the Tax Foundation, here are the specifics of the proposed plan and how it may affect your returns:
- Replace the current seven tax brackets on ordinary income, which range from 10% to 39.6%, with three brackets of 12%, 25%, and 33%.
- Replace the current personal exemption ($4,050 per individual and dependent) and the current standard deduction ($6,300 for single filers and $12,600 for married filers) with a standard deduction of $30,000 for married filers and $15,000 for single filers.
- Eliminate the Net Investment Income Tax, which is an additional 2.3% tax on net investment income from dividends, interest, and capital gains.
- Allow an above-the-line deduction for child care costs, up to an amount equal to the average cost of care in your state, allow a tax credit of up to $1,200 for child care expenses to lower-income families, and create new savings accounts for care of children or elderly parents.
- Eliminate the dreaded Alternative Minimum Tax for individuals.
There are many potential implications of this plan, so now would be the time to consult your tax or financial advisor, because this proposal has a chance of becoming policy in the New Year.
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