What Trump's Tax Plan Could Mean for You
Image source: The Motley Fool.
Donald Trump's stunning election upset promises to bring major changes to the current tax structure in the U.S. Trump has pledged to stimulate the economy by lowering taxes across the board and spending money to overhaul the nation's infrastructure. During his campaign, Trump outlined his plan for restructuring the current tax code to make it more streamlined and efficient. Here's a breakdown of what Trump wants to do to your tax bracket.
If you're in the middle class
If you are one of the millions of middle-class Americans, your tax bill could either rise or fall depending upon your circumstances. Trump's plan would eliminate the "head of household" filing status and raise the standard deduction to $15,000 for single filers and $30,000 for married couples filing jointly. But he will also scrap personal exemptions and put a cap, albeit a large one, on itemized deductions. Trump's plan will reduce the number of tax brackets from seven to three, and most Americans will fall into one of the lower two brackets.
Here's a breakdown of Trump's proposed tax brackets under the most recent version of his tax plan :
Ordinary Income Tax Rate
Married Filing Jointly
$112,500 or more
$225,000 or more
Data Source: DonaldJTrump.com . Chart by author.
Note that there is, in a sense, a fourth "bracket" of 0% for income of $0-$15,000 for single filers and $0-$30,000 for married couples filing jointly, thanks to Trump's greater standard deduction. In other words, if you're a single taxpayer with earnings of $15,000 or less, or a married couple filing jointly with earnings of $30,000 or less, then you could claim the standard deduction and completely wipe out your tax liability.
However, if you currently file as head of household, then you may end up paying more in tax than you do now, as the $15,000 standard deduction for single filers under Trump's plan may be less than the combination of your current standard deduction and the personal exemptions you can claim. Under the current tax structure, a single parent with one child who files as head of household can earn $17,400 without owing any tax, while a couple with three children can earn up to $32,850. Both single- and dual-parent households with at least two or three children will therefore suffer under Trump's new tax plan, as the new standard deduction does not take into account the number of dependents in the household, which means that families with several children will end up receiving a smaller deduction and thus pay more in taxes.
On the other hand, if you are single or married with no children, then you will probably pay less in taxes under Trump's plan, especially if you are a high-income earner. There are some income thresholds where Trump's new tax rates are higher than your current ones, but you will pay less on your lower tiers of income to begin with.
If you are facing an increase in taxes, you may find some relief in Trump's child care proposal, which would allow filers to deduct the average cost of child care in your state on your return, and you may also be able to deduct contributions of up to $2,000 per year to a new savings account designated for child care expenses. Although this break will not totally offset your potential tax increase, it can substantially reduce its impact.
If you own a small business, Trump's plan may be much more palatable, as he intends to reduce the top tax bracket for all forms of business income to 15% in an effort to stimulate spending and investment by business owners. This could mean that you will be able to keep more of your profits in your own pocket under Trump's administration than you did before.
Critics contend that way too much of Trump's tax plan benefits the top 1% of all earners, while advocates say those tax breaks could lead to substantial economic growth, which could benefit the performance of the financial markets and create new jobs here at home. So if you're unemployed, you may have a better chance of finding a job in a Trump economy.
It remains to be seen whether Trump will be able to push his tax plan through Congress in its current form. The GOP's tax plan will provide more benefits to the middle class than Trump's plan, and it is likely that Trump will have to make some compromises in order to get his plan approved. Stay tuned to see what developments arise in the future.
The $15,834 Social Security bonus most retirees completely overlook
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $15,834 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies .
The Motley Fool has a disclosure policy .