Looming republican tax reform has left many taxpayers wondering how and when they’ll feel the effects of the forthcoming bill. Republican lawmakers have just released their $1.5 trillion proposal for the president’s measures under the Tax Cuts and Jobs Act. It aims to fulfill Trump’s promises of cutting itemized deductions and lower taxes for corporations and small businesses. How could you be affected by the proposal if it passes? Find out below.

Change in Tax Bracket

Maybe you’ve been in the same tax bracket for some years – that could all change with the new bill. Instead of seven brackets, there will be four: 12%, 25%, 35%, and 39.6%. If you’re a single filer, the incomes will be up to $45,000, $200,000, $500,000, and above $500,000. If you are married, the brackets will then be up to $90,000, $250,000, $1 million, and over $1 million. The option to be head of household will be revoked.

Deductions: Standard and Itemized

Deductions will see quite a change as well. Standard deductions will nearly double to $24,000 for those filing married and $12,000 for singles. Personal exemption will be repealed. This change corresponds to the elimination of itemized deductions (sales & local income and sale taxes (SALT) deduction, medical & long-term care expenses, moving expenses, adoption tax credit, alimony payments, tax preparer fees, student loan interest and teacher classroom expenses), as well as the reduction of others. Mortgage interest rates will have a limit of $500k instead of $1 million and property taxes will be limited to $10,000. The charitable contribution deduction will remain, but streamlined.

Credits

Credits would have a positive change; the Child Tax Credit is raised to $1,600 from $1,000, and a $300 family tax credit will be added for each parent and non-child dependent. The Earned Income Tax Credit will not change.

401(k) Retirement Plans, Capital Gains, and Social Security

401ks would not be impacted, although there are talks of future limits, causing heated debate both publically and privately.

Capital gains and Social Security would remain as well, with no anticipated changes.

Other Taxes

First, the Estate and Death tax exemption would be doubled to $11 million, and then be phased out in 6 years. The Alternative Minimum Tax would be eliminated.

Next, the corporate tax rate would be cut to 20% from 35%. The R&D tax credit would remain, and immediate write off for new equipment. For small businesses, the tax rate will be lowered to 25% on income for pass through like entities, but business owners will see a higher tax rate on income received as wages.

Finally, for global & International taxes, double taxation will be removed. A one-time repatriation tax will be lowered and applied to those returning from overseas (as well as offshore corporate funds). Incentives to create jobs abroad will be removed to encourage US job creation.

How would these changes affect the average American taxpayer?

Most of the big benefits affect those making $500k or more that can take advantage of the new lowered tax bracket and exemptions. Additionally, corporations will see monetary gain with slashed taxes; whether this will stimulate job growth is of debate.

Middle class Americans would most likely see their taxes goes up, depending on how much they can take advantage of credits, and if they’re small business owners.

The Senate still needs to release its version of the republican tax reform bill, which will be followed by many public and private debates before amendments are made and a bill passes.

What do you think about the bill? Make sure and comment below!