Hello my friends and Happy February.
Tax Cuts – Good or Bad?
Well, here we are, fresh off the heels of the recent State of the Union Address by President Trump. Now, I wouldn’t normally delve into politics, but in this case, I want to make a slight exception. This post isn’t about whether you like or dislike the President, approve or disapprove of his “assessment” of the SOTU, or whether you noticed he clapped for himself a lot – really, I am joking about the latter. The media is eating him alive for clapping; calling it a “disgusting pat-on-the-back”. Really??? Whatever. One thing the President mentioned that I was extremely interested in is Tax Cuts and/or Tax Reform.
On to my point with this post.
Looking back one year when President Trump was sworn in as the 45th President of the United States you would really be hard pressed to determine if a lot has changed. Curious, I went to Factcheck.org to see if I could find some “neutral” opinions and stats of things that have changed. I found some interesting things and I encourage you to head over there and take a quick peek. I’m not certain that our current President can achieve a completely “neutral” assessment of his successes or failures; maybe because everyone loves to hate him – possibly well earned. Not my point here at all.
On the minds and in the hearts of most Americans since Mr. Trump took office is Are We Better Off than we were a year ago. A year is not long in the life of politics or for such a huge economy as the U.S. economy.
I would like to focus on one major accomplishment of the current Administration – tax reform and the possibility that it will put more money in our pockets next year when we file our taxes. Let me elaborate.
I looked back at two years’ of tax filings that my wife and I did for ourselves – 2015 and 2016. The last few years, since our children have left home, has seen our tax situation growing closer and closer to owing the government additional tax at the end of the year. What?? That’s right – owing even more than what we pay in. Craziness 🙂
Below are some samples of our situation based on current tax law to get an idea what I’m talking about, and then I’ll show you how those same numbers would look under the new law.
- I would describe us (my wife and I) right in Middle Class with salary and typical tax situation. We both work and earn right around the Illinois Median salary, we own our home, and we currently have no children at home.
- Our home is nearly paid off, so our interest deduction is minimal.
- The last two years we barely had more than the Standard Deduction – This is very important because, under the new law, the Standard Deduction is doubled for our filing status – Married Filing Jointly.
- I have to withhold from my wages at the Single rate and my wife pays extra withholding each check to keep us from owing at the end of the year.
Ok, let’s talk some numbers:
- Let’s assume that the situation above applies, and it does. The numbers are rounded to make it easier to demonstrate. Let’s assume that Married Filing Jointly couple has $100,000 of taxable income after adjustments (AGI).
- Let’s also assume that, like us, you will only take the Standard Deduction. Great if you can itemize. We have our home almost paid for so interest on our mortgage does not help us.
Under Current Law:
|Income Subject to tax||$79,200|
Under New Law – 2018:
|Income Subject to tax||$76,000|
It should be pretty obvious that the new tax law will put some money back in my pocket at the end of next year when we file our taxes. These examples should be pretty close to our situation because my wife and I are both salaried employees and our salaries have not changed much. So, that means nearly $2,800 savings on our tax liability when we file for 2018 – AND at a lower rate. Furthermore, beginning in February of 2018, withholding on wages is set to be reduced – ya again.
I’m not talking Refunds yet. A lot depends on what you would actually get back if the above numbers hold true, for example, how much you withhold from your pay, other credits, or penalties, and a few others things. However, the numbers above would mean that you would be paying tax on a lower amount AND at a lower rate – Both sound pretty good to me.
So, I hope the Tax Reform bill signed by the President does what he says it will,,,,save us all some money.
Tax Cuts – Good or Bad? I’m going with good for now but with a cautious eye on what could derail that. Of course, our Democratic friends want to remind us that these tax cuts are “temporary” – code for “as soon as we get a Democrat President they’re gone”.
In staying with my Midwest theme, I am attaching some very good articles regarding the tax cuts and how they may impact the region. There are some good things discussed, but some not so good as well. One of the articles discusses the elimination of an important tax credit that is beneficial to our Midwest farmers and COOPS (something I know nothing about) – that’s not good news for those folks. Guess we’ll have to wait and see 🙂
Thanks as always for reading and feel free to send me your thoughts.
Photos courtesy internet search