What does tax reform mean for me? A simple cheat sheet:
If you’ve been following the tax reform debate, odds are you’re confused. At this point both the House and the Senate have passed their own version of the Tax Cuts and Jobs Act. The dreamy vision of a “postcard”-style tax return is long gone. In fact, the bill that the Senate passed in the wee hours of Saturday morning was 479 pages. You’re probably wondering: “What does it mean for me?
While the House and Senate bills have some significant differences, they follow the same themes for individuals. Both would just about double the standard deduction. On the surface, this looks like a win. However, when you pair that increase with the elimination of several itemized deductions, a lot of winners turn into losers. For example, if you itemized $45K on your Schedule A last year, largely due to state and local income taxes, you may be looking at a tax increase because you would likely elect the standard deduction. A report from the House Committee on Ways and Means estimated that fewer than 10% of households would elect to itemize. That is less than one-third of the households that currently fill out a Schedule A.
It is unclear how the wealthy will fare when all is said and done. Many people were glad to see the Alternative Minimum Tax repealed in the House bill, only to find out that the Senate added it back at the last minute. Both bills also dealt a major blow to the estate tax. The current law allows a married couple to pass nearly $11MM to the next generation without any estate taxes. In 2013, when that exemption amount was lower, only 4,700 Americans ended up having to pay the estate tax. The Senate plan would double the exemption to about $22MM. The House bill would phase out and eventually eliminate the estate tax in 2024.
The unfortunate reality is that this bill will hurt many middle-income Americans. In addition to eliminating many itemized deductions, this bill also would eliminate many above-the-line deductions, including. Things like educator expenses for teachers and student loan interest. deductions would be a thing of the past.
Congressional lawmakers are still negotiating, but below you will find a cheat sheet highlighting the major changes expected for individuals.