It was passed in 2017 and only meant to last eight years. It was unfortunate that certain Republicans refused to sign off on making them permanent. It simplified and lowered taxes for most Americans and mostly succeeded in making the tax laws more even and fair. It even resulted in the highest total taxes collected by the U.S. government in history. Don’t forget, it was a tax CUT. Many just can’t wrap their brains around the simple economic fact, free up the economy to produce more by rewarding their efforts with a smaller tax bite and voila! Bigger economy results in more total taxes collected.
So, what are some of the main components that we only have two more years to enjoy? It lowered corporate tax rates from 35% to 21%. It lowered personal tax rates across all stratas. It created a larger child tax credit and nearly doubled the standard deduction. It tripled the estate tax exemption. It eliminated the unfairness of high tax states making taxpayers in lower state tax states carry a higher burden of federal income tax. (Called the SALT limitation.) It almost singlehandedly reduced the average American from becoming subject to the horrible Alternative Minimum Tax. It set many tax items to be adjusted by inflation every year.
The IRS really loves it. Their audit time on personal returns dropped substantially, since most folks now just take the standard deduction rather than itemizing. Folks! Most of the minor cheating that many Americans did was fudging itemized deductions. (A little more medical expenses here, a few more tax deductions there, a bit more charitable contributions and voila, you succeeded in illegally lowering your tax bill. Multiply that out across 180 million taxpayers, assuming even only 25% did this cheating, it adds up to a LOT of lost tax revenue. Like I said, the IRS loves the standard deduction.)
So what will happen in 2025 when this tax law is sunsetted and all goes back to what it was before? Let’s say we have a married couple, both earn $60,000 wages, the wife has a Sub-S business that earns an additional $60,000. They have three kids all under 17 and total itemized deductions come to $18,000. Under the old tax law which will be restarting in 2025, their tax will be $9,751 higher. OUCH!
Best chance we have to avoid this is to lobby hard for Congress in the next two years to do something simple. Just make the current tax law permanent. You know that is impossible. They will have to tweak it here and there to match their agendas, which will result in changes coming in 2025. Let’s hope the changes are not too painful.
Have you heard? Psalm 16:11 says, “You will show me the path of life. In your presence is fullness of joy. In your right hand there are pleasures forever more.”
Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459. On the web at BullisAndCo.com. Also on Facebook.