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Tax Reform Bill 2017: What Does the New Tax Reform Entitle?

It has been 31 years that the taxation rules have remained unhinged, with the arrival of a new president and a Republican majority in the senate, a tax overhaul has just been voted into approval and will soon be signed into law by President Trump. Since the last quarter of the year there has been a general frenzy with regards to who will be affected and till what extent, with the new tax laws. There are some major changes intended to be taken into action very soon, in this article we’ll understand the new tax brackets that are being introduced, and how they affect each group.
Instead of the seven tax brackets that were from, 10% to 39.5%. The new bill reduces the number to four brackets, this is how the comparison looks like:

 Single Fillers

Current Tax BracketsYearly IncomeNew Tax BracketsYearly Income
0%0%Up to $12,000
10%$0 to $9,325
12%12%$12,000 to $45,000
15%$9,325 to $37,950
25%$37,950 to $91,90025%Beginning at $45,000
28%$91,900 to $191,650
33%$191,650 to $416,700
35%$416,700 to 418,40035%Beginning at $200,000
39.6%$418,400 up39.6%Beginning at $500,000
Source: Forbes
The above chart illustrates the variation in both tax brackets, as well as the yearly incomes of each tax ranges. The new categorization does simplify the interpretation of taxation. It also allows tax exemption to those individual filers earning under $12,000.
Instead of the 10% tax group, a 12% has been formed which covers individuals earning from $12,000 all the way to $45,000, compared to the previous bracket of the same category which started at $0 till $9,325. This means that individuals earning $12,000 will now be charged at 12% compared to the current brackets where they have to pay 15%. Which means, that if your yearly earnings are $12,000, in light of the current brackets you are paying 1,800 in taxes whereas now with the reform you’d be paying $1,440 which is $360 less than what you pay.
Further up, single fillers that earn more than $45,000 are taxed at 25% this bracket also includes all those that earn from $45,000 to a little shy of $200,000. In contrast to the current division, the 28% meant for people earning $91,900 to $191,650 get a tax relaxation of 3%. One percent more than the minimum taxable income earners get.
People earning $200,000 and up have been bumped up to 35%, similarly the highest tax bracket of 39.6%’s criteria has been raised from $418,400 to $500,000. People earning anywhere from 200,000 to less than 500,000 will just be charged at 35%, only those earning more than $500,000, will fall in the highest taxed bracket.

Married Couples

Tax BracketsYearly IncomeNew Tax BracketsYearly Income
0%0%Up to $24,000
10%$0 to $18,650
12%12%$24,000 to $90,000
15%$18,650 to $75,900
25%$75,900 to $153,10025%Beginning at $90,000
28%$153,100 to $233,350
33%$233,350 to $416,700
35%$416,700 to 470,70035%Beginning at $260,000
39.6%$470,700 plus39.6%Beginning at $1,000,000
Similarly, the tax brackets of married couples have also been changed drastically. According to current tax brackets couples that file jointly, and that earn $0 to $18,650 pay 10% tax, yet the new reform gives such people a levy up to $24,000 in accumulated earnings, in other words they are exempted from all taxes.
Those that fall in the criteria of $24,000 to $90,000 are to be charged at 12%, however the current brackets charge all those that earn from $18,650 to $75,900 at 15%. Next up are married couples that earn from 75,900 to 153,100 are charged at 25%, whereas in the new reform individuals that have a cumulative earning from $90,000 to less than $260,000 are charged at the same rate. This results in a tax reduction of 3% and 8%, respectively for those that earn less than $250,000 based on the bracket they fall under.
Furthermore, married couples earning from $260,000 till less than $1,000,000 will be charged at 35% compared to the current $416,700 till $470,700 limit. The 39.6% bracket however has seen the largest change, couples earning more than $1,000,000 will now fall in this category, in comparison to the current limits that include couples earning more than $470,700 to be included within this category.

What happens with Small Business Owners?

According to the bill being passed more scrutiny will follow small business owners as to what they include in the personal income and business income, as business incomes have been dropped down to 25 percent. However, this applies only to the top tear bracket of businesses which hardly small business owners reach or are at.
There is also a slashing of itemized deductions being conducted which also can bring a bigger problem for small business owners.
With such drastic and abnormal changes occurring on the taxation system, which has remained consistent for the past three decades, the safest option individuals and small business have, is to entrust tax professionals to manage their taxes for the upcoming 2018 through to 2019. This tax reform also brings to light how clear and transparent books can make a greater difference when filing taxes and preparing for the season. With services such as Monily, you can be rest assured to not have to worry with taxation changes, where your books and tax preparation all happens under the same roof.

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