Question

1. Name 3 new tax law changes as it relates to Individual Tax Payers?
2. Name 3 new tax law changes as it relates to Corporate Tax Payers?
3. What is the new “Pass thru” tax deduction? Which entities does it apply to?
4. Do you think that by reducing the corporate tax rate it will help or hurt the United States?

Answer 1

1. New tax law changes related to Individual Tax Payers are as follows:

          a. Taxpayer Certainty and Disaster Tax Relief Act of 2019: Reauthorized deductions for tuition and fees and for mortgage insurance premiums.

          b. Revision of Tax Cuts and Jobs Act of 2017: Doubled the standard deduction for most filers for tax year 2019.

· $12,200 for individuals (up $200 from last year to adjust for inflation)

· $18,350 for heads of household (up $350)

· $24,400 for married couples filing jointly (up $400)

c. Social Security Number Required for Child Tax Credit

Increased the credit from $1,000 to $2,000 per qualifying child under 17 with a valid Social Security number.

2. New tax law changes related to Corporate Tax Payers are as follows:

1. Reduced the top corporate income tax rate from 35 percent to 21 percent, and eliminated the graduated corporate rate schedule.
2. Repealed the corporate alternative minimum tax.
3. Repealed the domestic production activities deduction.

3. The pass-through deduction was introduced as Section 199A under the 2017 Tax Cuts and Jobs Act.

The owners of pass-through businesses who qualify under this Section can deduct upto 20% of their net business income from their income taxes. Owners of pass-through business add their business incomes with their own individual income and pay their individual tax rates.

For example, if a person falls under the category of paying 22% income tax rate. His pass-through business income is say $50,000. He can deduct 20% of $50,000 i.e. $10,000 and can save 22% of $10,000 i.e. $2,200 from their income taxes.

The entities covered under pass-through business are:

· a sole proprietorship (owner personally owns all the business assets)

· a partnership

· an S corporation

· a limited liability company (LLC)

· a limited liability partnership (LLP)

Also, for the owner to claim the pass-through deduction, he or she must calculate their total taxable income for the year from all sources after standard deduction but before the pass-through deduction and must have positive taxable income.

4. Lowering corporate tax rates would help the US economy in the long-run. US is a developed country with strong competition from countries offering lower corporate tax rates.

• When the tax rates increase, the corporation in order to avoid paying huge amounts as taxes shift their jobs and operations abroad. As a result the profit also flows outside the US.
• Also, these corporations in order to reduce their delacres business income indulge in spending more instaed of saving and investing for future plans. Keeping capital for future and hard-times would mean paying taxes on them. Hence, such companies craete more business uncertainty and lose their standing in bearish times hurting the economy. The business world as a result becomes more unstable.
• When the economy reduces tax burden on corporations, they would be enticed to invest in new technologies and reseearch and development. They would develop new products and servcies benefitting themselves, their customers and the economy at large.
• The companies redirect their money from spending on lobbying and other channels to save on taxes, to other more productive business operations.
• The economy also becomes more competitive when compared with nations offering lower or no corporate tax rates.

So lowering corporate taxes can prove to be a boon for the U.S. economy in the long run by keeping their jobs in the home country, increased spending on innovation and profit-generating activities and thereby putting more money back in the economy,