The Donald Trump tax plan might be welcomed by taxpayers...
According to what Trump has outlined so far, Americans will be contributing less of their paycheck to the government. In addition, Trump has said he wants to make it easier for taxpayers to file their taxes without having to rely on tax preparation companies like H&R Block Inc. (NYSE: HRB).
Here's a breakdown of how the Trump tax plan affects your wallet...
How the Trump Tax Plan Will Impact Your Money
Under the Donald Trump tax plan, Americans who make less than the poverty line ($11,880 for a single-person household) will pay no taxes.
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In addition, the tax rates for married-joint filers will be slashed into three brackets from seven. This is a huge change that Trump claims will save taxpayers time - and mitigate the stress of Tax Day. Here are Trump's proposed tax plan rates:
- Those earning less $75,000 per year: 12% tax rate
- Those earning more than $75,000 per year but less than $225,000: 25% tax rate
- Those earning more than $225,000 per year: 33% tax rate
The brackets for single filers will be one-half these amounts.
In theory, Trump's tax plan rates will offer a substantial break from current tax levels. For example, those currently making less than $75,000 per year pay a tax rate of up to 15%. That's 3% less than what joint filers would be paying under Trump's tax plan. While that seems like a paltry percentage decrease, in dollar figures it represents savings of $2,250 for those making $75,000. That's more money in the bank.
Those making more than $225,000 per year will have the largest tax cut under Trump's plan. Right now, these individuals have an effective tax rate of 33% to 39.6%. That means the Trump tax plan would hypothetically save someone making $240,000 a year over $15,000.
Lastly, under Trump's plan, standard deductions are to be increased substantially. For joint filers, deductions will be raised from $12,600 to $30,000. For single filers: $15,000 from $6,300. In addition, the maximum itemized deduction under the Trump tax plan will be capped at $100,000 for single filers and $200,000 for joint filers.
But aside from income, there's another feature of the Trump tax plan. It changes how you pay taxes on your investments.
And for investors or fund managers, this could prove an unwelcome change...
How the Trump Tax Plan Will Affect Your Investments
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President-elect Trump is likely to keep the existing capital gains tax rate in place. As a quick reminder, the capital gains tax is for any profit made off assets, like bonds, stocks, precious metals, or property. The current capital gains tax has a capped rate at 20%.
The real change Trump would make is with so-called "carried interest." This term refers to the income flowing to the managers of investment funds. Under Trump, carried interest will no longer be taxed at the capital gains rate. Trump's plan proposes representing carried interest as income, which could result in fund managers bringing in less income from their investments. More specifically, investment managers that bring in over $75,000 a year in capital gains will be taxed at a higher rate under Trump's tax plan.
The Bottom Line: Trump's tax plan is intended to significantly lower taxes for the lower, middle, and upper-middle class, with the upper class receiving the largest tax break. In addition, the Trump plan seems to aim at making it easier for Americans to pay their taxes, cutting the number of tax brackets down from seven to three.
An $80 Billion Cover-Up? Under the watchful eye of Congress, the government will soon be implementing a controversial plan that threatens the retirement of millions of Americans. If you have a 401(k), IRA, or any type of retirement account, this could cause you to miss out on $68,870 or more. Learn more…