How the Trump Tax Plan Affects You

Trump Tax Brackets – Still Seven Total

Trump’s tax plan originally called for cutting the number of tax brackets in the federal income tax system from seven to four, but the final version of the bill maintains the seven brackets. It did, however, change their rates.

Previously, the tax brackets went up to a top rate of 39.6%. The new tax brackets, which applied as of January 2018, have rates of 10%, 12%, 22%, 24%, 32%, 35% and 37%. These are the rates that determine your tax bill and still apply in 2024.

The Trump Tax Plan Increased the Standard Deduction

There are deductions to consider as well. The Trump tax plan nearly doubled the standard deduction for all filers. If you’re a single filer or if you’re married filing separately, your standard deduction for 2021 is $12,550. Joint filers have a deduction of $25,100 and heads of household get $18,800.

Big Changes to State and Local Tax Deductions (SALT)

During initial talks, Republicans called for eliminating almost all itemized deductions, including state and local tax (SALT) deductions, but keeping those for charitable deductions and mortgage interest. Ultimately, the TCJA capped SALT deductions to $10,000 ($5,000 for married taxpayers filing separately).

Previously, taxpayers who itemized could deduct their state and local income, property and general sales tax payments on their federal tax returns. This was especially useful for residents of high-tax states like California and New Jersey.

Trump Tax Plan Doubles the Estate and Gift Tax Exemption

The federal estate tax, which ranges from 18% to 40%, applies when people with large estate transfer property to heirs. The Trump tax plan doubled the lifetime estate and gift tax exemption from the 2017 value of $5.49 million for individuals up to $11.18 million. This higher limit, which allows wealthy families to transfer more money tax-free to their heirs, has increased each year since.

While this lifetime exemption is indexed to inflation, it’s set to return to previous levels (but adjusted for inflation) after 2025

Trump Tax Plan Lowers Corporate Tax Rate

Before 2018, the corporate tax rate was 35%. The TCJA reduced the rate to 21%. This flat rate applies to all corporate income (of at least $1). The intent was to give corporations a financial break that would be passed on to the employees, and subsequently the economy.

How The Trump Tax Plan Affects You

Growing Business, Cutting Taxes