A campaign promise kept will revive the US economy so private taxpayers and business owners need to be on their toes.
Whenever a new presidential administration is in place the promises of the campaign trail slowly (and sometimes quietly) fall to the wayside as ‘bigger issues’ rear their heads. More often than not, the very promises that saw a president elected dissipate as the words ‘pragmatism’ and ‘bi-partisanship’ are uttered breathlessly by politicians and political analysts alike. And again, more often than not in the last few administrations, economic promises fell to words like ‘political reality’ or worse, ‘special interest’.
Now, for the first time in what seems like decades, a newly minted president and his administration kept an economic promise that looks very good for private citizens and corporations alike. President Trump signed into law the Tax Cuts and Jobs Act (TCJA) on Friday, December 22nd. And while the expected sturm und drang of the media and financial experts on both sides continues, there is much to know about the TCJA that is being lost in the cacophony.
Among its many provisions, the TCJA
- Reduces the top individual tax rate and the corporate tax rate
- Modifies the individual tax brackets
- Eliminates and/or caps many individual itemized deductions
- Enhances many corporate deductions
- Changes the corporate taxation system to a territorial one
- Provides for repatriation of offshore earnings.
While the economic policies of the past administration focused on tax and spend theories that relied on the premise that more government spending would grow the economy, the business background of the new president takes the nation down a path that was proven more viable during the Kennedy and Reagan administrations. When the power of American industry and American business are unleashed then, as the saying goes, the rising tide lifts all boats.
The bottom line, though, is that next year a majority of Americans will get a tax cut. Four out of every five taxpayers can expect a reduction, according to the Tax Policy Center. Overall, the average taxpayer should see their after-tax income rise by 2.2%. If you’re closer to the top of the heap, earnings from $307,900 to $732,800, you’ll get a 4.1% boost (an average drop in tax bills of $13480.)
The TCJA will also, through its corporate tax changes, will allow large companies to invest more in R&D as well as increase their workforces. With the repatriation of offshore earnings and a more favorable business environment in the United States, it stands to reason that a good chunk of the new workforce hires will be right here at home. Additionally changes to the Affordable Care Act and, more specifically the elimination of the individual mandate and its onerous tax penalty, should see more tax payers on the lower end of the income scale have more money to spend and (more importantly) save.
The TCJA will impact many planning techniques and may require restructuring of certain business entities. Careful attention must be paid to the details behind the various provisions so that both private citizens and business entities can take full advantage of all the benefits while avoiding pitfalls.
As the TJCA has been debated and up through its passage and signing into law, the Shapiro Financial Planning Group has kept our finger on the pulse of the entire process. As you have questions, we have answers that will help to guide you moving forward into 2018. Please contact us for more information and to set up a consultation.
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