Tons of article weighing in on good , bad and the ugly of the new Tax Plan. Far more smart write ups of how this would help/shape the future and economy and also the impacts around it. But me being me, I just needed to review the tax plan to see if I can find some extra CASH$$$ so I can afford to signup for few more running races. So, what did I find – around an extra $500 . I will take it! If you get excited to find a $10 that is your own money you are my kind of people, and you are reading the right blog for the tax plan!
I turned 41 this year, and up until last few weeks I had no clue how the my salary got taxed! I always assumed I was under a 28% tax bracket, however, my actual net tax rate was 20%. Interesting right? (If you thinking how dumb I could be – I have no shame in admitting to what I dont know!). Here is why. Our tax system is ‘Progressive Tax’ system. The more you make the more tax you pay on the ‘more’ part of the money. what does that even me. I tricked myself to understanding it this way. If you make $100,000 a year, you get taxed 10% for upto $9325. From $9325 to $37950 you get taxed at 15% and so on and so forth. so a $100,000 income as a single filer puts you in 28% tax bracket. However, contrary to $28,000 tax you only pay $20,981 – which is about 20% not 28%. So if your boss offers you a raise, don’t panic that the raise might put you on a new bracket and you will end up losing money by making money. Apparently this is a common knowledge and everyone knows except me, but now I know!
2017 – current tax plan (prior to these new proposals)
|Rate||Taxable Income Bracket||Tax Owed|
|$0 to $9,325||10% of Taxable Income|
|$9,325 to $37,950||$932.50 plus 15% of the excess over $9325|
|$37,950 to $91,900||$5,226.25 plus 25% of the excess over $37,950|
|$91,900 to $191,650||$18,713.75 plus 28% of the excess over $91,900|
|$191,650 to $416,700||$46,643.75 plus 33% of the excess over $191,650|
|$416,700 to $418,400||$120,910.25 plus 35% of the excess over $416,700|
|$418,400+||$121,505.25 plus 39.6% of the excess over $418,400|
The above chart is what the current tax bracket for single filers. (Find the rest on here – https://taxfoundation.org/2017-tax-brackets/ ). However, the new plan simplifies it to 3 brackets!
|Rate||Taxable Income Bracket||Tax Owed|
|$0 to $45,000||12% of taxable income.|
|$45,001 – $200,000||$5,400 plus 25% of the excess over $45,000|
|$200,001 – $500,000 (Why are you reading my blog if you are making this much money 🙂 )||$44,150 plus 35% of the excess over $200,000|
So in the new plan, my $100,000 salary would get a tax of $19,150, instead of $20,981 in the old plan! So far so good! so Even tho it seems like the tax bracket is pushed around, I come out saving about $800.(I can sign up for LA Marathon, handful of Rock N Roll races with that money!!).
Standard Deductions & Personal Exemption
If you never get a break in your life, like I do, know that you do get a break in the name of standard deductions. This is the money you don’t have to pay tax on! As a single filer, my 2017 Standard deduction in the – before this new plan – is $6,500 + $3900 personal exemption(its the deduction for you being you and not a burden to others!). However, with the new plan, it goes up to $12,000. (No personal exemption for being you!)
- taxable income: $100,000 – $10,400 = $89,600
- tax = instead of tax on $100,000, now calculate tax on 89,600 which is $18,138 instead of 20,981. How nice!
- Taxable income: $100,000 – $12,000 = $88,000
- tax = 5400(12% for 45,000)+ 10,750(25% for rest) = $16,150.
So I come out with $16,150 in the new plan, instead of $18,138 in the old plan. So far so good. About $2,000. Which would mean, running race money + couple of new pairs of shoes. SHould I vote for Trump in 2020? Not quite right away.. Read more!
California State Tax
This is where it gets messy. This is my own tax calculation and I happen to live in California where we pay a crazy amount of state income tax. Mine comes about $5000. In the old plan, it was tax deductible, which meant, I don’t get to pay tax on it. However, not any more in the new plan. So how does my tax look.
- taxable income: $100,000 – $10,400(deduction + exemption) – $5000(state income tax) = $84,600
- tax = $16,888
- $100,000 – $12,000 = $88,000 taxable income. (no state income tax deduction)
- tax = 5400 + 10,750 = $16, 150.
So I come out with $16,150 instead of $16,888 in the old plan. Ugh. not bad still. About $738.
So what is my verdict:
My filing is pretty simple, so I come out with a $738 savings. However, it gets lot more complex with more complex changes for individuals. The reason I wanted to share my calculations is to show the world, how Naive I was when it comes to taxes, and to give you few basics, so you can work your way through the rest of the coverage on your own!
- If you already own a home
- Know that property tax that is tax deductible now, is capped at $10,000.
- If you are looking to buy a house now,
- Unlike in the past, mortgage interest is only deductible for loan upto $500,000.(it’s currently $1,000,000). So if you are taking out big size mortgage, don’t count on Uncle Sam to cover you!
- Property tax is capped at $10,000.
- If you are filing jointly , the standard deduction doubles for you as well. ($24,000).
From the calculation I had to do for my own, it seems like the tax plan keeps most people safe but for some unique situations, it will leave few people high and dry!
As much as I am genuinely interested in how this impacts everyone, I am also very much interested in making sure, I cover my own pocket book. So everything about this new plan(Don’t just read high lights from a facebook post). I liked Wall Street Journal’s coverage the best – https://www.wsj.com/livecoverage/tax-bill-2017
Will any of this come true? May be, May be not, but Even warren buffet things the tax changes are pretty sure thing. Just the details may be! Make sure to read everything!