The Tax Cuts and Jobs Act was signed on December 22, 2017 and produced some of the most significant impacts in tax law in over 30 years. Research the tax reform changes brought about by the Tax Cuts and Job Act, analyze the impact these changes have on individual tax payers, and identify related tax planning strategies.
Purpose of the Tax Cuts and Jobs Act and Objectives for its Implementation
Tax Cuts and Jobs Act (TCJA) was a comprehensive tax reform act that was enacted in 2017. This most extensive tax law change in over three decades. The law developed 119 provisions that repealed, added, or modified segments of the U.S. tax code, with 86 of which are associated with international and business taxes (Tax Foundation, 1). The main purpose of the TCJA was to reform the personal income tax code by reducing tax rates on business income, investment, and wages, simplifying the tax code, and extending the tax base. The TCJA is also said to deliver tax reductions to middle- and lower-income families. It also increases the competitiveness of American businesses. The Act implementation objective is to ensure the effective application of the proposed changes to ensure a successful transition to the new taxation system (Tax Foundation, 1). Taxation changes will require a change of individual and corporate standards of filing their tax returns. The implementation objective should focus on consideration of the new law by all while filing their returns, correct interpretation of the law, and high level of accuracy.
Significant changes Brought Forth by the Tax Cuts and Jobs Act
The TCJA law comes with several changes in the country’s taxation system. One of the changes is that the Act intended to reduce the corporate income tax rate by 9% to 21% and shift the U.S. to a terrestrial taxation system from a worldwide taxation system. The main advantage of this change is that the net profit of those companies increases than before. Another advantage of the increased earnings gives the company a chance to grow at a higher rate than before creating new job opportunities and hence reducing unemployment. The main advantage of this change is that the government will experience a 9% loss in corporate taxation revenue. This change also brings the possibility of government budget deficiency or reduction in the development rate in the country, due to lack of enough funding. The Act also lowers statutory tax rates at nearly all taxable income levels and moved the thresholds for various income tax brackets. Each taxation bracket has experienced a reduction in the taxation rate (Tax Foundation, 1).
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One of the advantages of this change is a reduction in individual taxation rate, hence an increase in net income especially for low-income earners. The other advantage is an increase in individual, couple, or household purchase power, hence an improvement of their lifestyle, especially for those at the middle blanket. One of the main disadvantages of this cut is the reduction of government revenue from individual taxation. The reduction rate in the taxation bracket is inconsistent, thus initiating some sense of discrimination especially for the least income earners and the second last bracket group. The tax rate for the two groups does not change the reduction then seems discriminative which is likely to create a negative feeling among the affected individuals, especially those in the lowest income blanket. The third change is raising the exemption on the alternative minimum tax to $109400 from $86200 for married couple filing, and augment the phase-out threshold to one million dollars. This is meant to encourage married people to file their returns as a couple (Tax Foundation, 1). The change is going to increase the net income for the married couple. It is also going to increase the number of married people filing returns as a couple. This is another strategy of using taxations to keep families together. The main disadvantage is that this further reduces government tax revenue. An increase in the exempted amount for couples seems discriminative for the single parents who struggle to raise their kids alone. The government should have considered offering them an increase in their exemption amount or the introduction of a new relief that favors them and makes their life more bearable (Tax Foundation, 1).
Impact that each of the Three Significant Changes has on the Taxpayers as an Individual and a Family
One of the main changes is the reduction of tax brackets rates for individuals. This will reduce individual taxation per year, and hence increase individual net income. The situation applies to those who file their returns as single individuals and those who file their returns as a couple. An increase in net income is likely to improve people’s quality of life, by increasing their purchase power. It can also result to increase in their savings, nutritional level, among other things. The amount saved from the reduced tax can be used to better their lives as individuals or as a family. Another change touched on family benefits. The TCJA doubles the child credit amount from $1000 to $2000 (U.S. Department of the Treasury, 3). TCJA also extends the child tax credit family limit, extending this provision to families with higher income. This relief the parents of eligible children, mostly below 17 years and with social security numbers form some of the costs involved in caring for their children. The credit increases the family net income and hence reducing the child care responsibility burden. Extending the salary limit increases the number of families who enjoy this credit. TCJA almost doubled the standard deduction for single, heads of household and joint filers from what was deducted in each group, based on the previous law. This increases the net income for each individual or family, an aspect that improves their financial status and betters their life. It also assists in reducing family debts, improving diet and nutrition, and the general quality of life (U.S. Department of the Treasury, 3).
Tax Planning Strategy to Maximize Tax Savings Based on the Three Significant Changes Identified
Any taxpayer can focus on maximizing tax savings based on the new TCJA. One of the strategies to achieve this is by filing the returns as a couple. This has several advantages that include reduced tax rate as per the new law based on their bracket range. A joint filing range is always favorable than filing as single individuals for married people (Tax Policy Center, 2). Another strategy is by ensuring all children aged 17 and below in the house have a security number. This will help in claiming full child tax credit from the government, which will increase family net income. Another strategy is by taking advantage of set standards. One should always identify the standard that favors his or her returns filing system to be able to deduct the provided standard to reduce the taxable income. Taking advantage of provided standard deductions, child tax credit, and the most cost-effective returns filing system where possible will ensure that the couple or an individual minimizes the amount to be taxed. This results in overall household, individual, or couple net income, improving their financial level in the family (Tax Policy Center, 2).
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