President Trump and Your Taxes – What to Expect
We are about to have a new President here in the United States. That much we know. But a lot of people are wondering how the Trump Tax Plan will affect their taxes. Click here to read or watch more IRS Help resources.
As a tax attorney with 17 years experience, I have some insight into what we can expect as taxpayers. Click here to watch or read more information on IRS Back Taxes.
There are several tax relief goals President Elect Trump has his eyes set on. He feels they will put more after-tax wages in the pockets of everyday Americans if successful.
As a tax attorney, I prosper more whenever complex tax codes are in place. Trump wants to simplify them and I’m one hundred percent on board with him there.
The current tax system is too difficult to navigate for the average individual.
Though I am more than a little skeptical the Trump Tax Plan will bring jobs back to America at the levels we need them to.
The Trump Tax Plan Will Stop Corporate Inversions
Trump expect’s his tax plan to grow the American economy by discouraging corporate inversions.
An inversion is the act of moving a corporation to another location to take advantage of lower tax rates.
It’s something that has been going on for a long time now.
Money remains offshore because of corporate inversion. If this money comes back into the country, it gets taxed at one of the highest corporate tax rates in the world at present.
This makes no sense, whatsoever, to me and a lot of other smart people in our country feel the same way.
More American jobs will be saved. This will enable our country to regain some of our competitive edge in the world market.
So I believe the Trump Tax Plan will save American jobs if inversions are dealt with.
Trump States His Tax Plan Will Decrease The Taxes Of The Average Everyday Americans — But How?
Anyone earning less than $25,000 a year, and is single, their taxes will be lowered under the Trump Tax Plan.
Anyone married, or filing joint returns and making less than $50,000, may not have to pay taxes at all—and that’s a huge benefit.
It’s a huge move and may remove 75 million people from the tax rolls.
This likely includes a large number of inner city and poorer suburban families.
No doubt, there are a lot of families getting by on $50,000 or less. The median income may be around $50,000, which represents half the people in the country.
So the Trump Plan, if enabled as proposed, will put more money in the pockets of average Americans.
How Will Trump Tax Plan Affect Earned Income Tax Credit Recipients — It’s Safe For Now
As it stands, there’s a lot of households that don’t pay any income tax at all.
These people also get an Earned Income Tax Credit. So, they earn so little money they avoid paying taxes. But they’re able to get a refund from the IRS for taxes they’ve never paid.
Some people get between $1,000 and $3,000. Which cost taxpayers a huge amount of money to dole out every year.
Thie Earned Income Tax Credit began under President Reagan, but has gotten out of hand since.
While Trump hasn’t stated that he’ll abolish this benefit, it might be on the chopping block down the road.
You can bet it won’t be popular in areas where people are struggling to make ends meet, though.
But, as of now, your Earned Income Tax Credit is safe.
Reducing the Number of Tax Brackets
President Trump will work to reduce the number of tax brackets. Currently, there are seven. He wants to reduce the number down to four.
So, the tax brackets will be:
- and 25%.
At present, the highest tax bracket is 30%.
What Does Fair Share Mean?
These new tax rates would amount to the lowest tax rates since WWII, and that’s a good thing for the American people.
Yet there are people thinking that only the wealthy will enjoy these tax cuts.
Because they feel the rich will not be paying their “fair share” of the tax burden.
Actually, that’s a belief that I don’t care for. The richest people in our country pay something like 90% of the nation’s tax revenue.
So, it’s a challenge figuring out what their “fair share” happens to be.
I like to think that fairness is all about quality.
Should a person who works hard, takes risks, and makes a million dollars a year or more pay a higher percentage than a person who warms the couch all day?
To make it a bit more personal, I have employees at my office who work hard, are putting their children through school, making car note payments, buying a home, and paying taxes. I pride myself in having been able to create a business by taking risks. Everyone benefits as a result.
We should start looking at the bigger picture in our society. Our country puts a lot of people to work through the grit and determination of small business owners.
Punishing them for their efforts is counterproductive to the health of our country.
These owners put in late hours, pursuing a degree, and then finding the courage to start a business. And to top it off, there’s no guarantee their business will succeed.
Will they be left holding the debt and financial strain?
So, there’s a lot of sacrifices that business owners take to make room for others in the world.
Trump Promises To Bring Manufacturing Jobs Back To America — But Will He Succeed
This will be a huge challenge for President-Elect Trump. Maybe even his toughest. He’s going to have to convince corporations to look past their bottom line. He’s known for his shrewd negotiating skills, and he’s going to need them all to pull this off.
The odds are that even if companies are granted a slew of financial incentives to come back to the United States, will they find themselves stuck with antiquated technology compared to competitors who’ve shifted their operations to low-tech countries?
That’s something we’ll all have to wait to see how it turns out. But I like the fact President Elect Trump has it on his agenda.
What Exactly Is The Trump Tax Plan?
Here’s Trump’s proposed tax plan in a nutshell:
- It’ll replace seven tax brackets down to three. Expect taxes at 12%, 25%, and 33% depending on your income and other variables.
- He’ll try to cut the Net Investment Income Tax. This currently represents an additional 2.3% on net investment income derived from dividends, capital gains, and interest.
- He’s also planning for an above-the-line deduction for those with child care costs. It will anti up the amount allowable by each state. States may allow tax credits up to $1,200 to cover child care expenses for low-income families. Families can use this money to create savings accounts for the elderly or children.
- Married couples earning $100,000 would realize almost a 30% reduction in their taxes.
- Married couples earning $200,000 would see a reduction of approximately 14%.
- Single filers earning $120,000 would see their tax bills reduced by approximately 9%.
So, there could be a lot of good things on the way, with respect to taxes and a Trump Administration.
How Tax Codes Change Human Behavior — Using The Marriage Tax Penalty As An Example
Tax codes have always been engineered to affect human behavior.
The government tends to levy taxes on something they want to happen less. It’s a way of discouraging people from doing a certain thing.
For decades, tax codes have been used to control human behavior.
It would almost seem that the government, through tax codes, would prefer that people not get married.
There may be a lot of reasons not to get married, like shady in-laws, the threat of divorce, and attorneys, and even the attractiveness of the other person.
There are also tax hits that also go with getting married. This is what they refer to it as the “marriage penalty.”
Donald Trump wants to drop that penalty.
Here’s an example, and the numbers could be off a bit, but they’re close to the target.
For a single person making $91,150 a year, the 28% tax bracket applies. For married couples, the 28% tax bracket applies at a threshold of $151,900.
You can see how it dings married couples.
Bringing Those Jobs Back
Cutting corporate taxes will bring jobs back.
This can happen if companies like Apple decide to bring manufacturing back to the States from China.
China’s labor rates are far less than those of the United States. There may also be other more costs attached to bringing jobs back to America.
An iPhone in China may only cost $20 to manufacture. So, as long as Americans are willing to pay the price, what’s the incentive for Apple to move their manufacturing back to the States?
There’s a lot going on in the world, and I always strive to stay on top of things so as to offer the very best services possible for my clients.
Keep tuned in. You’re always bound to learn a lot of things about a complex topic—taxes.