Thursday, December 21, 2017
Just so you know – while “technically” the Standard Deduction amounts are almost doubled, the net tax benefit, to taxpayers, if there are any, is nowhere near equal to almost doubling the Standard Deduction.
This is due to the elimination of the Personal Exemption deduction. While, to make up for this, qualified children get the equivalent of a $1,000 credit via the doubling of the Child Tax Credit, and "non-child" dependents get a $500 credit, the individual taxpayer and spouse get NO TAX CREDIT to replace the loss of the deduction.
The Standard Deduction for a single taxpayer goes from $6,350 to $12,000. But when you factor in the loss of the Personal Exemption of $4,050, the actual tax deduction goes from $10,400 to $12,000. This is only $1,600 more – nowhere near a 50% increase in net the net deduction.
The increase in tax benefit for a non-itemizing married couple filing a joint return goes from, effectively, $20,800 to $24,000, or an increase of $3,200 – again nowhere near 50%.
And the $500 credit for children age 17 and older and other dependents does not make up for the loss of a $4,050 per dependent deduction.
And, as has been frequently discussed everywhere, the limitation on the itemized deduction for taxes will substantially increase the net taxable income of many taxpayers in highly taxed “blue" states like New York, New Jersey and California.
To be fair, it is true that the actual tax rates are lower and the income brackets expanded – so this may make up for some of the increase in net taxable income. More net income is taxed, but at a lower rate.
So, while there are good things in the Act that I do support, and many taxpayers will end up with some more money “in pocket” as a result, the Tax Cuts and Jobs Act is by no means a MASSIVE tax cut for anyone other than taxpayers like Donald T Rump and his family.