If you are a working adult in the United States, then you most definitely know about taxes. In fact, you probably hate taxes in general and the tax season that comes around every year. However, if you haven’t been following the news, you may still be unaware of the sweeping changes to the tax code that was enacted in President Trump’s 2018 Tax Reform Bill. Touted as including massive tax breaks for the middle class, the democrats continue to insist that it isn’t true, and it is just more tax breaks for the wealthy. But that couldn’t be farther from the truth.
Although the many changes to the tax code will go over plenty of people’s heads, there is one undeniable change that people can readily see as positive for them and that is the marginal income tax rates. You can check out the new marginal tax rates for yourself, but just as an example, for a single taxpayer making $100,000, their marginal tax rate has dropped from 28% to 24%. All rates below that also dropped as well, meaning you should be paying less taxes to Uncle Sam this year!
Another undeniable change is the changes to the standard deduction. This amount equates to how much you can “deduct” from your taxable income (the less taxable income you have, the less tax you end up having to pay). From the previous year to this year, that standard deduction amount has approximately doubled across the board, which is essentially another form of guaranteed savings (and a pretty significant amount of savings at that).
In addition to the tax breaks for individual taxpayers, the new tax reform has also helped the small business owners that are the heart and soul of the American economy. Everyday Americans like Mia Hart (who I have the pleasure of knowing through a mutual friend) have taken advantage of these business tax savings to great effect. Mia is a proud business owner, having started a brand new online sex toy company called Blissful Cherry in early 2018. Despite her job as a counselling psychologist, Mia wanted to start her own company on the side selling sex toys, which is one of her many passions.
Although she was expecting a significant chunk of her net income taken by the IRS, she just recently told me that the new 2018 tax reform bill includes a new 20% qualified business income deduction, which basically means that instead of paying taxes on the full 100% of her net income, she only has to pay taxes on 80% of that income. Although the savings were unexpected, they were a welcome surprise as Mia began working on her tax returns for 2018.
That tax deduction has given her more financial flexibility and freedom moving forward, to the point where she has told me she may soon quit her “day job” and run her business full time, and potentially even higher employees if business keeps booming. This is trickle down economics at its finest, albeit at just the small business level. But with thousands of small businesses receiving similar tax breaks, you can bet it will make a significant difference in the economy as a whole.
The best part about all of these tax savings is that there are plenty of other smaller tax cuts that individuals, married couples and small business owners can all take advantage of. These savings put money right back into the pockets of everyday Americans which ultimately ends up stimulating the economy even further as there is more money being spent by the middle class (either as consumers or as small business owners re-investing in their businesses). Although you may not be guaranteed to personally have a larger tax refund this particular year (since every situation is different), just know that the 2018 tax reform is a great thing for the middle class as a whole and will ultimately make the United States a more prosperous country in the long run.