There's been so much speculation about President's Trump recent tax proposal, and while none of it is even close to law, we all want to know how it personally will affect us.
So consider this your "cut-to-the-chase" guide to the tax plan that Treasury Secretary Steven Mnuchin and Chief Economic Advisor Gary Cohn recently outlined. While it was little more than a one-pager, there are a bunch of things that could dramatically change your tax bill.
For instance, they propose eliminating the alternative minimum tax, the estate tax and all personal deductions except for the mortgage interest deduction and charitable contributions, says Mark Luscombe, principal analyst at Wolters Kluwer, a tax and accounting services company.
So let's go through each and see how you will be affected.
And while the Administration originally wanted to see tax reform in place by August, the earliest you can expect anything will be toward Christmas.
Editors' pick: Originally published May 3.
Getting rid of four of the seven tax brackets is the biggest part of the tax simplification process. The Administration has this grandiose notion that we can eventually do our tax returns on a note card.
Who's Affected? Basically everyone. While on the campaign trail, Trump originally proposal 33% as the highest rate and 12% as the lowest. The most recent rates are 10%, 25% and 35%.
It's high time we get rid of the Alternative Minimum Tax (AMT). It originally went into affect back in 1970 to ensure that the wealthy couldn't reduce their tax bill to zero, thanks to credits and deductions. So you basically calculate your tax bill under both systems - the regular system and the AMT system - and your tax bill is the higher of the two.
The biggest problem was that it was never really indexed for inflation, so now it's hitting the middle class hard.
Who's affected? Eliminating the AMT will help families with kids and folks in high-tax states. Mainly because there are no personal exemptions allowed under the AMT system - that means you can't deduct your kids -- so married couples with kids now are hit unintentionally. Same with state and local taxes paid. You cannot take a deduction for them under the AMT system, so folks in high-tax states were twice as likely to be on the AMT as those in low-tax states, according to the Tax Policy Center.
Basically everything but the mortgage interest deduction and the deduction for charitable contributions will be eliminated if this plan becomes law.
So the state and local tax deduction goes away. And while there was no mention of the personal exemptions, we can probably assume they are gone too, because Trump talked about eliminating them before.
So what's left? Sounds a lot like the old AMT system, doesn't it? Yep. "Trump is basically creating an AMT type system with lower rates and fewer offsets," says Luscombe.
Who's affected? Those of you have lots of deductions on Schedule A - Itemized Deductions may be SOL now.
The Standard Deduction for 2017 is $6,350 for single taxpayers and $12,700 for married taxpayers filing joint returns. And "the majority if taxpayers take it," reminds Luscombe.
Who's affected? A lot of people. For starters, renters who don't qualify for the mortgage interest or real estate tax deductions will get a bigger benefit if the standard is doubled.
So this continues the move to greater simplification.
For 2017, the estate tax exemption is $5.49 million for a single person. So a married couple can have $10.98 million in their estate and not owe estate tax.
Anything about that amount gets hit with a 40% tax rate.
Who's Affected? There are so many problems with the estate tax, but the biggest issues are: 1) It often hits farmers and small businesses and 2) You were already taxed on most of the income in your estate while you were alive - so why should you have to pay again?
You shouldn't have to.
Thanks to Obamacare, all or part of your net investment income -- including your long-term capital gains and dividends -- gets smacked with a 3.8% Medicare surtax, that has been dubbed the "net investment income tax." So for the wealthy, that bumps the maximum federal rate on long-term gains and qualified dividends to a whopping 23.8% (20% for the regular capital gains tax plus 3.8% for the net investment income tax).
Who's Affected? If your adjusted gross income (AGI) exceeds $200,000 as a single, $250,000 if you file married joint or $125,000 if you use married filing separate status, then you have been hit with this ridiculous 3.8% surcharge. If it goes away, you will be doing the happy dance.
We really don't know what this means, because we haven't gotten anything definitive in this area. What we do know is that the President's daughter is spearheading this part of the plan, and, well, what Ivanka wants, Ivanka seems to get.