BY LES MEGYERI
When he campaigned for president, Donald Trump said he planned to put H&R
Block out of business – people could do their own taxes because the laws would be
so simple. Now he will work with Congress to pass what is coined the Middle-Class
Tax Relief and Simplification Act.
The particulars aren’t known, but there is a good chance that some changes will occur. Following are the current proposals.
Tax rates: It is likely that the top tax rate will be reduced to 33 percent from the current level of 39.6 percent. Also, the lowest rate will be raised to 12 percent. The seven income brackets will be reduced to three.
Itemized deductions: The Trump plan caps them at $200,000 a year for married couples and $100,000 for single filers. The standard deduction would rise to $15,000 for single filers and $30,000 for married couples, so it may not be worthwhile to itemize deductions.
Mortgage interest and real estate tax deductions: The itemized deduction cap will limit the mortgage interest rate and real estate tax deductions. These proposals may be defeated because the real estate industry strongly supports the retention of interest and real estate deductions.
Personal exemptions: Worth $4,050, these exemptions may disappear. Presently, these credits are not available to high income taxpayers, but high earners will get a break if the alternative minimum tax is repealed.
Capital gains: The Trump plan does not reduce the capital gains tax which now tops out at 20 percent, but Congress may reduce this tax. There is a substantial capital gains Medicare surtax which was enacted to pay for Obamacare but if the health law is repealed, the surtax will go away.
Medical deductions: Currently taxpayers may deduct medical expenses if they exceed 10 percent of their adjusted gross income. (Those 65 and older may deduct the amount that exceeds 7.5 percent through the end of tax year 2016.) If the Affordable Care Act is repealed, the rate may go down to 7.5 percent, where it used to be. Fines for not having medical insurance may also disappear.
Medicare payroll tax: The Affordable Care Act raised the payroll tax on W-2s by almost 1 percent which will presumably go away once the act is dismantled.
Les Megyeri is retired from the U.S. Congress Judiciary Committee and resides in Washington, DC and in Venice, FL. This article should not be construed as one offering tax advice.