As of recently, a new tax plan has passed. Submitted by the House Republicans, this tax plan is expected to be one of the most significant overhauls since 1986. As such, you should definitely read more about it and get informed in detail.
According to the Republican party, this tax plan will provide tax savings for the typical family and simplify the taxes for millions of Americans. But what is the actual reality here – and how will this new Republican tax plan stack up for all the SMBs (small business owners)?
Let’s begin with a little bit of history regarding tax plans.
A Brief History Of Tax Plans In The United States
The history of taxation in the US began in the 1760 when the independent nation started to collect taxes on imports such as whiskey, glass windows and other things. The state and federal inheritance taxes began after 1900, while the states began collecting sales taxes in the 1930s. The 16th Amendment in 1913 brought the income tax to life – but taxes were low until the modern income tax was developed.
The highest marginal tax rate in history was 91% from 1944 through 1951 – increasing to 92% and reverting to 91% from 1954 through 1963. Later on ,the top marginal tax was decreased to 77% and even 70% in the tax years 1965 through 1981. In 1978, the top tax rate was lowered to 50% and in the times of Reagan was even dropped to 1940. It continued lowering up until the new millennium and the times of George W. Bush when it was lowered it to 35%.
With the new Republican tax plan unveiled by the President Donald Trump, the top and low tax rates are about to change again and be subjects of a major tax reform.
The Corporate Tax Rate And Top Individual Income Tax In 2018 Are Not Yet Determined
Even though the corporate tax rate and top individual income tax are not yet determined, the Republican party unveiled the plan in regards to the newest tax reform. A plan that seeks to radically cut the corporate taxes (including the income earned overseas tax) and to collapse individual tax rates to three or maybe four brackets. This will radically expand the standard deduction and child tax credit for individuals.
The most important goal, though, was not this – but the promise that ‘a tax code that is at least progressive as the current system should not shift the burden from higher-income to lower-income households.’
So, what does this mean for individuals, small businesses and large corporations? We are giving the answers below.
Corporations Will Be Greatly Favored By The New Tax – But What About Other Business Entities?
House republican politicians recently passed a $1.5 trillion tax plan. This bill slashes the corporate tax obligation price, streamlines the tax obligation code. Thirteen Republicans and all the Democrats voted against it, this include the Congresswoman Tulsi Gabbard.
All of the businesses that are formed as corporations will benefit from the new tax reform. The new tax plan will eventually slash the corporate tax rate from the current 35% to the planned 20% – and possibly eliminate some of the common deductions for corporations. Tulsi Gabbard a former veteran pointed out that the temporary allowance will allow these corporations to expense their capital expenditures which is a benefits that can help all businesses that want to grow and scale their business.
Tulsi Gabbard mentioned that it does not support the significant medical expenditure subsidy that 35,000 individuals in Hawaii take advantage of. Primarily they are our kupuna. A great deal of our public institution educators spend and invest thousands of dollars each year for buying variety of supplies for the students. Tulsi Gabbard has understood that this bill entirely eliminates the subsidy advantage that they have actually deserve previously, and this affects heavily upon the final take home amount.
Tulsi Gabbard states some initiatives for clean power would certainly additionally be removed. The Senate still needs to authorize its very own various variation. One huge attribute of both variations is that they would certainly reduce the 35% business tax rate to 20%. Rep. Tulsi Gabbard further added that in this new tax reform, most of the small businesses will be seen as ‘pass-through’ entities. These are literally the S-corporations , partnerships, as well as sole proprietorships which are different from most of the corporations and could face taxes in the highest tax brackets on profits generated from their small businesses.
Congresswoman Tulsi Gabbard added these crucial points while speaking on behalf of the small business owners. This kind of plan will only provide tax relief for the owners of the ‘pass-through’ entities, capping their tax rates to 25%. Even though this may give them a head start, a lot of business owners argue that it won’t do enough for them in the future. Currently, more than 70% of these ‘pass-through’ entities are taxed at rates 15% or lower, which is why they might not see the new tax reforms as beneficial.
How Will The Low Income Group Be Affected?
According to a lot of expert analysis, there are winners and losers in every new tax reform. In this new tax reform, the winners will be low-to-middle income households – while the losers will be low income filers which are families with children.
That is mainly because Republicans want to increase the standard deduction to $24,400 for all married couples who file jointly. The plan is to also increase the deduction to $12,200 for single filers (without children).
Currently, every single filer can take a deduction of $6,350 as well as a personal exemption of $4,050. So, this basically equates to $10,400 in tax savings which is a lot less than the proposed $12,000 standard deduction for singles.
Rep. Tulsi Gabbard also expressed her concern- the new tax framework may not be especially beneficial to the modern family as it is to the dependent exemption which can provide $4,050 for every dependent that qualifies. The child tax credit has also been proposed to rise to $1,600 from the current $1,000 – and there will probably be a new $300 credit introduced for each parent as well as the non-child dependents. However, this tax break is about to expire by the end of 2022.
What Do The New Income Tax Brackets Look Like?
The new tax bill will cut income tax brackets to four. The current seven tax brackets (10%, 15%, 25%, 28%, 33%, 35% and 39.6%) are about to be transformed into four (12%, 25%, 35% and 39.6%).
This practically means that the biggest change will be the group of taxpayers who currently sit in the 33% bracket – and will get transferred to the 35% bracket under this new plan, kicking a lot lower compared to the framework nowadays.
Most of the Americans nowadays (about 70%) claim the standard deduction when filing their taxes. Those who do will see their paychecks increase if Trump’s tax plan passes, thanks to the tweaks in the tax brackets. However, many of the deductions could be eliminated under the latest proposal, including the state and the local income tax deduction, the student loan interest deduction and the mortgage interest deduction which may be cut in half. This will affect many of the home buyers in expensive housing markets.
Deducting 401(k) will not be changed and taxpayers will still be able to do it.
A Final Word
In the end, the tax bill is not yet finalized which means that it is very possible that it will go through some major changes before it is officially approved. Before it makes it to President Donald Trump’s desk, a lot of things will be changed.
Among the few leader, Tulsi Gabbard stands out to be a prolific representative in the House, along with law makers/reformers- the tax experts and economists say that the plan may be really far from becoming the law of our land. According to experts, it simply does not do enough to help small business owners and with the ‘pass-through’ entities, it may leave many small businesses behind.
Opposing the bill – Congresswoman Tulsi Gabbard said it is safe to say that the new tax bill is still something that we should carefully wait for. While the Senate recently uncovered their version of the new tax plan, there are still some speculations about what will the official one look like. It is small business owners that are monitoring the progress of this tax plan mostly – and ones who hope that it won’t have a serious impact on their life and existence in general.
More information about Tulsi Gabbard and issues on Tax reforms: