Question

Why is the new tax reform law represents the most significant tax changes in the United States in more than 30 years. The new tax brackets, modified deductions and credits, corporate tax change.

Answer 1

The new tax reform law represents the most significant tax changes in the United states in more than 30 years because of the various initiatives taken like reduction in income tax rates for the individuals, increasing the standard deduction, reducing certain itemized deductions and so on. We see the certain changes below as per new tax reform

1) Reduction in the individual Income tax rates :

Earlier the rates were : 10%, 15%, 25%, 28%, 33%, 35% and 39.60%

New rates : 10%, 12%, 22%, 24%, 32%, 25% and 37%

2) Increased standard deduction

Earlier : Joint return - $13000, SIngle - $6500 and head of household - $9550

New : Joint return - $24000, SIngle - $12000 and head of household - $18000

3) Increase in Child credit : In 2017, subject to certain income phase-out thresholds, the individual were allowed a child credit of $ 1000 each and in the new law the same has been enhanced to $2000. Under the new law this child credit begins phasing out as the individual's modified gross income exceeds the following amounts - $40000 (up from $110000); others - $200000(up from$75000). Also it allows upto $1400 (previous $1000) of the child credit to be refundable to the extend of 15% of the taxpayer's earned income in excess of $2500( previous $3000)

4) New Credit : The new law has created a new $ 500 non-refundable credit for each person the taxpayer could have claimed as a dependent under prior law who is not a qualifying child.

5) Reduction in corporate Tax rate : The new tax law provides flat 21% tax rate to the regular C Corporations and the personal services corporations. Earlier it was 35%.

Above are the most important changes in new tax reform law. There are many other changes as well which has benefited the individual and the corporates.