As debate rages over the extension of the 2017 tax cuts and the possible implementation of new tax policies, many Americans are left wondering how these changes will affect their finances.
Whether you’re planning a big purchase or just trying to stay on top of your expenses, here are five ways Trump’s tax plans could affect your financial situation.
1. Low Income Tax Rates Can Save You Money
One of the key elements of Trump’s 2017 tax cuts was lowering the income tax rate, which benefited millions of Americans. If these rates are extended, you may continue to see lower federal taxes deducted from your paycheck.
However, if Congress does not act, these cuts are set to expire automatically, which could lead to higher taxes for many households starting next year.
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2. General Large Deductions
The 2017 tax cuts nearly doubled the standard deduction, making filing easier for many and reducing taxable income. For example, a married couple filing jointly can deduct $29,200 in 2024 with no deductions.
Extending this setting can save a lot of money in your pocket. On the other hand, if we run out of time, many Americans may need to go back to withholding, which could increase complexity and reduce savings.
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3. Small Business Owners Can Keep Their Vacations
Trump’s tax plans introduced a 20% deduction for small business income under pass-through entities such as LLCs and S-corporations. Small business owners will continue to reap significant tax benefits if this deduction is extended.
However, if Congress fails to act, those businesses could face higher efficiency tax rates, leaving less money for reinvestment and growth, and potentially higher prices as they struggle to remain profitable.
4. Controversy about the effects of the deficit
One sticking point in the plan to extend the tax cuts is their cost. Under normal budget rules, extending the cuts would add $4 billion to the already bloated federal budget over the next decade.
While some lawmakers argue that extending the current tax rate doesn’t technically “cost” anything, others warn that a growing deficit could eventually lead to spending cuts, future tax increases or higher interest rates and inflation.
5. New Tax Cuts Are Still Possible
Trump’s campaign has touted some of the tax breaks, including eliminating federal income taxes on tips, overtime and Social Security. Other arrangements being considered, such as the big child tax credit or the larger deduction for education expenses, could also help families.
However, these changes have so far only been discussed. What actually happens will depend on how Congress handles the fiscal challenges ahead.
Navigate Tax Changes
The future of Trump’s tax plans is uncertain, but their impact could have a significant impact on your finances. It is important to monitor these events and adjust your financial strategy accordingly.
Whether it’s saving more now to prepare for a potential raise or maximizing current deductions, planning ahead can help you stay ahead of the curve.
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