President Trump and the GOP recently unveiled the Tax Cuts and Jobs Act. Your Money editor Lauren Lyons Cole explains what the bill could mean for your take-home pay and how to calculate how much money you will save or have to pay compared to the current plan. Following is a transcript of the video.
Lauren Lyons Cole: Trump’s tax plan is finally here. The Tax Cuts and Jobs Act, as it’s called, was revealed and there are a lot of details that could impact your money next year if the plan gets passed.
Good news for retirement savers: you can still contribute to your 401(k) on a pre-tax basis, that remained unchanged. But the tax brackets, right now we have seven, will be shrunk down to four.
The standard deduction is getting bigger, but it’s in exchange for eliminating many, many itemized deductions. A few of the deductions we could lose are the state and local income tax deduction, student-loan-interest deduction, and a cap on how much mortgage interest you can deduct on your taxes.
Republicans said the typical American family will save $US1,182 a year — very, very specific — but that’s less than $US100 a month, so these aren’t huge tax cuts. Here’s how you can figure out how much you will save on your taxes.
Start by finding your 2016 tax return. Look at line 37 on page one, that’s your adjusted gross income from last year. Don’t worry about what that is exactly, just know you need that number.
Then, take a look at the second page. Lines 40 and 42 are your deductions and exemptions from 2016. What the Republicans are proposing is collapsing those into one big standard deduction: $US12,000 if you’re single, $US24,000 if you’re married filing jointly. You can compare what you paid last year to those numbers to see which one is better for you.
Next, take your adjusted gross income, that’s line 37 from page one, and subtract out either the $US12,000 standard deduction or the $US24,000, depending on if you’re single or married, to come up with your taxable income under Trump’s proposed plan.
Compare that number to line 43 on your 2016 tax return. That’s the amount you paid taxes on last year. The lower this number is, the less you pay in taxes.
Once you know your estimated taxable income using Trump’s new plan, you can actually run the numbers using the tax brackets they have laid out. Simple as that! Then you can compare how much you would pay in taxes under Trump’s plan to what you paid in 2016 and that’s how much you could end up saving or paying more in 2018.
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