If you've already been plotting out which deductions and credits you were planning to take this April, you may want to pump the brakes. On Wednesday, President Donald Trump unveiled his framework for a tax plan that proposes sweeping changes aimed at simplifying the tax code, one of his major election platforms. Although there are still some pretty big details that Congress will have to sort out (like, most of them), here’s a snapshot of what the White House is proposing.
Three Tax Brackets Instead of Seven. Currently, there are seven tax brackets: 39.6%, 35%, 33%, 28%, 25%, 15% and 10%. The president’s plan would consolidate these to just three: 35%, 25% and 12%. (No word yet on which income ranges would apply to each.) The proposal argues that the lowest 10% tax bracket would be helped by a larger standard deduction and child tax credits (see below).
Increasing the Standard Deduction. The current standard deductions (the deductions you can take if you’re not itemizing deductions on your tax returns) stand at $6,350 for single and married filing separately filers, and $12,700 for married filing jointly. Trump’s plan would almost double those to $12,000 and $24,000, respectively.
Mostly Eliminating Itemized Deductions. Under the proposal, itemized deductions would become a thing of the past (farewell, home-office deduction?), with the exception of tax breaks for home mortgage interest and charitable donations.
Repealing Personal Exemptions and Increasing the Child Tax Credit. Currently, the child tax credit is $1,000 per child, but it phases out once you reach $75,000 in income for single parents and $110,000 for married couples filing jointly. The proposal would raise the credit (no word on how much) as well as the income thresholds at which the limits phase out (again, no specifics). In addition, the Trump plan would get rid of those personal exemptions you can claim for yourself, your spouse and your dependents (that is, your children) and would add a $500 credit to help offset the cost of taking care of non-child dependents.
Getting Rid of the Alternative Minimum Tax (AMT). The AMT is an additional federal tax that was introduced back in 1969 as a way to keep wealthy taxpayers from avoiding paying taxes using loopholes and tax shelters. However, because the AMT was not initially indexed for inflation, more people became subject to it each year, which put the policy under scrutiny. The president proposes to end it because he says it no longer accomplishes its original goal and complicates the filing process.
Remember, this plan is just a proposal — a lot could change as it works its way through committees and Congress. But if it passes with these provisions in place, it’ll represent one of the biggest changes to tax law the country has seen in a long time.
This article is not intended as legal or tax advice. Taxpayers should seek advice regarding their particular circumstances from an independent legal, accounting or tax adviser.