The recently passed tax act (‘Tax Cuts and Jobs Act’) is shaking out to most definitively benefit one group the most: US corporations.
And while that should come as no surprise, given the focus on lowering the corporate tax rate for some while now, there are costs to almost everyone else: Individuals and families, the self employed, and contract workers, especially since the provisions expire (‘sunset’) in 2025.
3 groups benefit the most:
1. Corporations: The essence of why this tax bill was created. The corporate tax rate is now a flat 21%. The hope is that this will prompt companies to keep their operations in the US vs. locating overseas and pass on the profits to shareholders (dividends) and workers (wages).
2. High Net Worth People: The estate tax used to kick in at a $11 million for a married couple. That has now doubled to $22 million.
3. Pass Through Entities: Non-corp business structures, such as LLCs and LLPs, will get a 20% deduction in taxable income.
There are other groups that benefit too, just in smaller ways:
1. Families With Children: Child tax credit doubled from $1,000 to $2,000.
2. 529 Account Holders: 529s can now be used for K-12 education, not just college.
3. Families & Individuals: Each income tax bracket (except the lowest bracket) will see some marginal tax rate decrease, anywhere from 1% to 4%.
4. Families & Individuals Who Do Not Itemize: The standard deduction doubles. While the standard deduction doubles for everyone, it’s value is offset for those that itemize their deductions, neutralizing the gains of the increased standard deduction.
There are a multitude of other provisions as well, but the key takeaways for individuals and families is 1. Less value in itemizing deductions and 2. All the individual provisions sunset in 2025.
Something else of note: None of this addresses how Social Security, Medicare, and Medicaid projected shortfalls will be funded.
The Holy Grail of a lower corporate tax rate has been accomplished. Now we get to see how it impacts, on an individual level, each of us.
(NOTE: This tax law is still being dissected and reviewed. There are more cost impacts to the tax act, but this writing is intended to address those that have the broadest implications.)