By: Lee Osborne, CPA, CFE, President
What will our federal income taxes be for fiscal year 2018? With just a few months to go until Tax Day, that’s still an unanswered question.
Congress Republicans released their proposed Tax Cuts & Job Act on November 2, but there’s still a long way to go before it becomes law. In the meantime, here are four inside tips about what you might expect to pay.
1. New Tax Brackets & The End of Personal Exemptions
The plan reduces the number of tax brackets from seven to just four: 12% (individuals up to $45,000 and married couples up to $90,000), 25% (for individuals up to $200,000 and $260,000 for couples), 35% (individuals up to $500,000 and couples up to $1 million), and 39.6% for over individuals over $500,000 or couples over $1,000,000.
This new plan will make major changes in other areas: The bill doubles the standard allowable exemption from $12,000 to $24,000. At the same time, the $4,050-per-household-member personal exemption will be eliminated.
2. More Credit For Kids & Other Deductions
Families will certainly feel the pinch from that cut, so Congress is working to offset the impact by increasing the child credit from $1,000 per child under 17 to $1,600 per child.
Congress is also battling over other deductions, like the state tax deductions. Some states – like California and New York – want to keep those with their high state tax rates, so it is still undecided at this point.
There had been talk of reducing the 401K deduction from $18,000 to $2,400, but that provision didn’t make it into the final version of the bill.
One major bright spot? The bill would immediately double the exemption on the estate tax. And after six years, if the bill’s authors have their way, it would be gone for good.
3. Savings For Some Business Owners
It’s a mixed bag for business owners. Small business owners will likely see a rate cut, while more profitable businesses will probably stay around a 20% and 25% rates.
Larger companies will also be barred from holding money tax-free overseas. A new foreign minimum tax on foreign earnings will go after companies that operate abroad.
4. Some Things Never Change
If passed, the bill will take effect on January 1. But if Congress gets stuck in negotiations – which seems likely – it could be made retroactive.
All of this being said, those individual taxpayers with income over $1,000,000 and living here in California, will still pay most of their income to income taxes: 52.9%. This in itself is wrong. Hard-working Americans should not have to give a majority of their income to the government.
For more information call Osborne Rincon CPAs at 760-777-9805.