Matters become complex, from business finances to civic duties, when tax enters the equation. The complexity varies depending on which category you fall under. Abajian Law, a law firm specializing in tax litigation cases, says that individuals deal with less complex tax problems while major publicly traded corporations wrestle with complicated tax issues that involve millions of dollars.
What does new tax law, which did not have an easy start, mean for both taxpayers?
A Tax Overhaul
Republican Congressional leaders had a hard time convincing Americans that the tax reform will increase wages, boost economic growth, and offer tax cuts to middle-class families.
In a survey from The New York Times, only a third of Americans believe that their taxes will decrease because of the new tax law. Almost half of Americans oppose the tax reform, in a separate poll done by Monmouth University.
A report from the Harvard Business Review, however, says that pessimists may just be too quick to judge the new tax law. The magazine clarified that with the tax reform, nearly every household would pay less in tax.
Over time, the magazine foresees that corporate tax reforms could lead to increased capital accumulation, higher productivity, and higher real wages. As an effect, pre-tax incomes may rise, while the share of incomes taken in taxes may decrease.
The Package Packed with Benefits for America
The Harvard Business Review stated that bill adopted the so-called “territorial” system of taxing foreign subsidiary profits.
The major reform in the corporate tax code lowered the corporate rate from 35 percent to 21 percent. The removal of the penalty on repatriating the earnings of American corporations’ foreign subsidiaries will urge companies to return to the US the $2.5 trillion of earnings trapped abroad.
For personal income, the tax reform refined the tax code as it doubled the standard deduction. According to experts, taxpayers who will decide to itemize deductions will experience a substantial decline in their shares.
As for the child tax credit, which is a refundable credit, the reform doubled it to $2,000 per child. It will begin to phase out solely for couples with incomes $400,000 or higher.
In the case of households, the individual tax return for middle-class families changed. Four-person families need not pay tax unless their income exceeds $61,000. Single parents earning $35,000 pay $158 in tax under the previous law. Under the new law, they will get a cash refund of $366.
Meanwhile, five-person families earning $100,000 still get a tax cut of almost $2,000
Tips to Maximize the Benefits of the New Tax Law
Since the new tax law is over 600 pages, it can be overwhelming to come up with strategies. But here are some tips to maximize returns this 2018.
– Streamline your withholding allowances
– Plot your major medical treatments
– Spend for private education
– List down your donations
– Evaluate your home-equity loan
Despite the implied benefits of the tax reform, it still has some disadvantages According to the Harvard Business Review, its negative impact will be on the fiscal deficit. The rise in taxable income coming from the tax law may not be enough to sustain the tax reductions. Experts say that the decade’s national debt might increase to nearly 97 percent, from the foreseen 92 percent GDP.
Under the new tax law, each household will receive an average increase in annual income worth $3,500. A very subtle rise in the growth of GDP could increase substantial average incomes.