Untangling the new tax law -- and what it means for individuals of various incomes, charities, universities, and businesses, both large and small. Although the doubling of the standard deduction has gotten lots of attention, there's plenty more in the law worth focusing on, including the personal and dependency exemption, and a deduction for owners of "pass-through" businesses.
Meanwhile, although the earned-income tax credit remains largely unchanged under the new law and is widely considered to have lifted more people out of poverty than any other federal measure, according to the IRS, as many as 20% of low-income workers in New Hampshire do not claim the credit.
- William Ardinger - Director of the Tax Practice Group at Rath, Young and Pignatelli, PC.
- Cary Gladstone - Senior Director of 2-1-1 NH & Asset Building Strategies at Granite United Way. In that role, he oversees a community-based free income tax preparation program and is also an IRS-certified tax preparer.
(Below excerpted comments edited slightly for clarity)
Cary Gladstone: What has not gotten very much attention is an additional deduction called the personal and dependency exemption. That's going away. So that's a deduction of $4,000 for the individual or spouse, if you’re married and filing jointly and have kids. You can no longer claim your family for a tax deduction. For a family of five, that’s a $20,000 deduction they will not be able to claim.
Gladstone: The earned income tax credit, for individuals, for working people who don’t make a lot of money, begins with the first dollar of earnings and goes up to as much as $54,000 for a family. It can mean as much as $6,000 as a direct payment to that family.
Here's how it works: If someone has a tax bill of $700 and a $3,000 earned income tax credit, the first $700 pays that tax bill, and the rest of that $3,000 comes to the person as a payment. That’s a huge thing. It has lifted more people out of poverty than any other measure at the federal level. This remains under this law, with a slight change: The rate of increase is tied to chained CPI.
Meanwhile, the IRS says that as many as 20 % of workers in New Hampshire who qualify for the credit do not claim it for a variety of reasons. Conservatively, that’s about $31 million left unclaimed by New Hampshire's most vulnerable members of the workforce.
William Ardinger: In the foreign world, where I am working a lot of time, I’ve helped businesses set up manufacturing facilities in the Czech Republic because the U.S. system has been disadvantageous. In that world, they’re screaming bloody murder against this tax bill because they know it sends a signal -- that the U.S. is now saying: We’ve been putting income out in the developing world, like China, India, Asia, the Eastern European countries, for too long, for 30 years. We’re changing the rules. It’s time to bring it back. We’ll see what happens.
The hope is that these savings are applied to build new plants, to build new capital facilities, in the United States -- instead of the Czech Republic.
Ardinger: The bill closed bunches of so-called loopholes. The corporate rate reduction provides a tax reduction for corporations that pay the tax. But the international changes, which tax all of the earnings that all of these corporations have had off shore and have been keeping off shore because bringing it back home would result in that 35 % tax, they’re now taxing all of that. So, there’s a bunch of provisions that increase taxes on businesses; there are also benefits for businesses, including that corporate rate reduction and a change for smaller businesses that organize themselves as pass-through entities -- which is a significant wide-open question on how that’s going to apply.
Here's an interactive piece outlining how the new law might affect you.
This piece by Washington Post Wonkblog lays out what's in the GOP bill, which has since become law.
Are you a small-business owner? Here's an explanation of how the new tax law could affect you.
Another interesting aspect of the law: For the first time in decades, Congress cuts taxes on alcohol.