Poor Man Survival
Self Reliance tools
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ISSN 2161-5543
A Digest of Urban Survival Resources
Will
Rogers
It is a good thing that we do not get as much government as we pay for.
It is a good thing that we do not get as much government as we pay for.
How Trump’s Tax Plan Will Affect You
Wage earners
don’t often realize that US corporations pay some of the highest corporate
income tax rates in the free world – 37% vs. 12-17% in Ireland for instance
which is why Microsoft, for example, is incorporated there as opposed to the
United States. Corporations such as
Nabisco, General Electric, NBC and many others pay zero US taxes using this
same dodge.
Many corporate
leaders are welcoming the president-elect’s plan for lowering the US rate to a
reasonable [projected] 15% while simultaneously ridding the US of the
many burdensome regulations which are hampering and costing our nation of
jobs. The US has more regulations than
any other nation and Obama implemented more than any other president in
history, virtually wiping out the coal industry, effectively raising the
utility rates for all Americans at a time when most have a hard time paying for
his escalating health insurance premiums…
Here’s an explanation of his plan based on the current info that
we have.
All that said, most of us can agree that the US tax code is in
serious need of reform. And given the lackluster state of the economy, a tax
cut of some sort is probably long overdue and will be welcomed by many.
Time will tell, but Trump’s tax plan might accomplish both goals:
simplification and lower taxes.
So the real questions are, what
are the details of the tax plan, and how will it affect you?
Let’s try to address both questions based on the information
that we currently have about the tax plan.
Individual Income Taxes
The Trump Tax Plan will generally lower income tax rates, while
completely eliminating certain other tax categories.
Tax Rates
With the Trump Tax Plan, the number of income tax brackets will
be reduced from seven down to just three:
·
Income less than $75,000 for married filing jointly (or $37,500
for single filers) – 12%
·
Income greater than $75,000 but less than $225,000 for married
filing jointly (or between $37,500 and $112,500 for single filers) – 25%
·
Income greater than $225,000 for married filing jointly (or more
than $112,500 for single filers) – 33%
Notice that in each of the three brackets, the applicable income
for single filers is exactly half that of those who are married filing jointly.
Under current tax law, the tax brackets are 10%, 15%, 25%,
28%, 33%, 35%, and 39.6%.
Under this change, most
taxpayers – but not all – will be subject to lower marginal income tax rates.
Capital Gains Tax Rate
Under the Trump plan, the current capital gains rate will be
retained. That means that the capital gains tax rate will top out at 20% for
investment assets that have been sold after being held for more than one year.
Alternative Minimum Tax (AMT)
The AMT is a provision
in the tax code that adds back certain tax preference items into your adjusted
gross income. It is designed to impose a tax on wealthy individuals who may minimize
or eliminate their tax liability through the use of certain deductions and
loopholes.
The problem with the AMT is that it is not indexed for
inflation. That imposes “bracket creep” in which many middle-class taxpayers
are now subject to the additional tax.
The Trump Tax Plan proposes to eliminate the AMT.
Obamacare Tax on Investment Income
This is a tax that was included in the Affordable Care Act,
a.k.a., Obamacare, that imposes a 3.8% tax on investment income received by
high income taxpayers. It was established to partially fund the Act.
This tax will also be eliminated under the Trump Tax Plan.
Death Tax, or Estate Tax
Under current tax law, an estate tax of up to 40% can be charged
on estates that are valued at more than $5.45 million.
Under the Trump Tax Plan, this tax will generally be eliminated.
However, the new plan will be subject to capital gains held until death and
valued at over $10 million. In addition, contributions of appreciated assets
into a private charity created by either the decedent or the decedent’s
relatives will be disallowed.
Individual Deductions
There will be significant changes on this front as well, and most will benefit the average taxpayer.
Standard Deduction
Under current tax law, the standard deduction for a married
couple filing jointly is $12,600, and for single filers, $6,300 (both for
2016). Under the Trump plan, the standard deduction will increase to $30,000
for married couples, and $15,000 for single filers.
Personal Exemptions
Under current tax law, taxpayers can deduct $4,050 for each
member of the household (taxpayer, spouse, and eligible dependents). Under the
Trump plan, personal exemptions will be eliminated. The general idea is that
they will be included in the higher standard deduction. If you are single and
earn $50,000 – on which only $35,000 would be taxable after taking the $15,000
deduction – your marginal tax rate would be 12%. That’s better than the 25%
marginal tax bracket that it would be in under the current tax code.
Head of Household Filing Status
This tax filing status will be eliminated under Trump’s
proposal.
Limitation on Itemized Deductions
Under the Trump Tax Plan, itemized deductions will be capped at
$200,000 for taxpayers who are married filing jointly, and $100,000 for single
filers.
For what it’s worth, the current tax system also provides for
the phaseout of
itemized deductions beginning with an income of $259,400 for single filers, and
$311,300 for married filing jointly.
Child Care Deduction
Under Trump’s tax proposal, you will be entitled to take an
“above the line” deduction (applies even if you don’t itemize) for children
under the age of 13. The deduction will be capped at the state average for the
age of the child, and also for eldercare for a dependent.
The deduction will apply to incomes of below $250,000 for single
filers, or $500,000 for married filing jointly. According to the plan, working
and middle-class families will see the largest percentage reduction in the
amount of their taxable income because of this deduction.
The exclusion will apply to families who use stay-at-home
parents or grandparents, as well as paid caregivers. There will be a limit of
four children per taxpayer, and the eldercare exclusion will top out at $5,000
per year, but will be indexed to the rate of inflation.
Childcare Rebate
The plan would offer spending rebates for childcare to certain
low income taxpayers through the Earned Income Tax Credit (EITC). It would be
equal to 7.65% of the remaining eligible child care expenses, and limited by a
cap equal to half of the payroll taxes paid by the taxpayer. It would be based
on the income of the lower earning parent in a two income household.
The rebates will be available to single taxpayers earning
$31,200 or less, or to married couples filing jointly on incomes of $62,400 or
less.
Dependent Care Savings Accounts (DCSAs)
These are special savings accounts that can be set up for the
benefit of specific individuals, which includes unborn children. All taxpayers
will be eligible.
Contributions will be limited to $2,000 per year from all
sources, including the account owner, immediate family members, or the employer
of the account owner. The government will provide a 50% match on contributions
by parents of up to $1,000 per year per household. Parents will be able to
check a box on their tax returns that will create a direct deposit of any
portion of their EITC into their DCSA account(s).
Both deposits and earnings will be free from taxes, and unused
balances can be rolled over from one year until the next. Once the child
reaches 18 the funds in the account can be used to pay for education related
expenses.
Business Income Taxes
This is a tax change that Donald Trump often discussed during
the campaign and in the debates. While it’s likely that most people interpreted
the reduction in the business income tax rate as applying to large
corporations, it actually applies to small businesses as well.
Under the Trump Tax Plan, the business tax rate will fall from
the current level of 35% (the current top corporate tax rate), down to 15%. The
plan will also eliminate the corporate alternative minimum tax. This rate is
available to all businesses, including corporations, sub-chapter S
corporations, partnerships and sole proprietorships.
That rate will be available to all businesses, including small
businesses, and will apply to profits that are retained within the business.
It also provides a one time 10% tax rate on corporate profits
held offshore that are repatriated back into the US. This is an obvious aim at
getting large, multinational corporations to bring their capital back into the
US.
Business Tax Deductions
The Trump Tax Plan eliminates most corporate tax expenditures,
except for the Research and
Development Credit.
There is however an attractive incentive with depreciation. While most business
assets must be depreciated over several years under the current tax code, under
the Trump plan, firms engaged in manufacturing in the US can expense capital
investment in the year that it is incurred. However if they do, they will also
lose the deductibility of corporate interest expense.
How Will the Trump Tax Plan Affect You?
Assuming they are implemented in a form that is reasonably close
to what the plan offers, how will you be affected? It really depends upon your
income situation, but it does appear that most people will get some tangible
benefit.
If you are a single…
For example, if you’re a single person who takes the standard
deduction, you will be able to deduct $15,000 from your taxable income. That’s
considerably better than the $6,300 standard deduction under the current tax
code, plus the $4,050 personal exemption, which together total $10,350.
If you are married with 2 kids…
If you are married filing jointly, have two dependent children,
and earn $100,000 per year, only $70,000 will be taxable after taking the
$30,000 standard deduction. Since your taxable income will be under $75,000,
your marginal tax rate will be 12%.
Under the current tax code, you would only be able to deduct a
total of $28,800, leaving you with a taxable income of $71,200. (The deduction
is comprised of the standard deduction of $12,600, plus $16,200 for four
personal exemptions at $4,050 each.) Your marginal tax rate would be 15%.
This means that you will save on taxes on two fronts – with a
slightly lower taxable income, and a lower marginal income tax bracket (15% vs.
12%).
If you are a small business owner…
If you own a small business, you will benefit even more. If your
business provides you with a net profit of $150,000 per year, the current tax
code would have you paying a marginal tax rate of 25%. But under the Trump plan,
your marginal tax bracket would be limited to the unified business tax rate of
15% on business income.
If you are married with 4 kids…
Not everyone will benefit however. Taking the example above of a
couple married filing jointly, earning $100,000 per year, they will actually
lose a bit if they have four children instead of two.
Four children will mean that there are total of six personal
exemptions, for a total of $24,300. When added to the standard deduction of
$12,600, deductions will total $36,900. This is significantly higher than the
Trump standard deduction proposal of $30,000. It would result in an additional
$6,900 of taxable income.
However, it is still possible this couple will pay less in taxes
overall, since the income tax brackets in the Trump plan are lower than what
they are in the current tax code.
On balance, it appears that Trump’s Tax Plan will benefit the
majority of taxpayers.
And given the combination of simplicity, lower tax rates, and
significantly lower taxes for businesses, I am cautiously optimistic that it
will also help the economy as a whole as well.
We shall see…
What are your thoughts about Trump’s Tax Plan?
Hats off to Bob
from Seed Time for this information – here to help you live a life of financial
freedom - and it all just starts with a seed. Find out more here.
Yours for another revolution,
Bruce ‘the Poor Man’
Additional
Resources
The Anatomy of a Breakdown
The Prepper’s Blueprint: The Step-By-Step Guide To Help You Through Any Disaster
Prepper’s Home Defense: Security Strategies to Protect Your Family by Any Means Necessary
Contact! A Tactical Manual for Post Collapse Survival
Homemade wood
stove
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can Buy’ >Karl Denninger in an
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1 comment:
Most of the demo-rats have been killing us with taxes-this looks good. I hope it clears the hurdles. Families should do a lot better, especially those with young kids.
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