Tax reform. There is a lot to it: pass-through businesses, territoriality, individual rates...the list goes on. But one of the most important aspects of tax reform is tax cuts. That means more money in your pocket to use how you want, not how Washington mandates.
That was the focus of last week's live Facebook Q&A between two speakers: Newt Gingrich and Paul Ryan. Given the wonkiness of these two, the entire 24-minute conversation is fascinating, but if you only have enough time to catch the highlights, read on for five ways you will save on your tax bill next year.
1. Bigger standard deductions
More of your money will now be shielded from taxation, with a nearly-doubled standard deduction. If you are filing as an individual, your deduction will go from $6,300 to $12,000. Married couples filing jointly will be able to deduct $24,000, as opposed to the $12,600 in current law. That's a big tax cut for the typical middle-class family.
2. Lower individual rates
Low-income earners who currently pay tax on income at the 10% level will see immediate savings by moving more income to a 0% bracket. Similarly, those paying 15% will move down to a 12% bracket for that portion of their income.
3. Capped rate on small businesses
The vast majority of small businesses in America pay taxes as individuals, which means they could pay as much as 40% or so on their earnings. But we want American businesses to grow and hire, so Congress is capping the tax rate on small businesses at 25%.
4. Immediate write-offs for businesses investments
Currently, whenever a factory owner buys a new machine or computer or equipment for their business, it can take years for them to realize the tax benefits. Under the unified framework for tax reform, they will be able to write off 100% of new businesses investments in the year in which they happen. That means that startups and small businesses can actually become cash-flow positive before they have to worry about Uncle Sam taking a chunk of their earnings.
5. Increased child tax credit
Kids are already expensive enough, and we need a tax code that is more family-friendly. That's why Congress is going to increase the child tax credit and reduce the tax burden on middle-class moms and dads.
BONUS: Millions of Americans will also receive what Newt Gingrich referred to as "the equivalent of a second tax cut." When doing your taxes becomes so easy that you could do it on a form the size of a postcard, that saves you money on accountants and software.