Will Trump's Proposed Tax Changes Impact Your Wallet?

Have you ever wondered how changes in tax laws could affect your finances? With the possibility of Donald Trump being elected, there are significant tax reforms on the table that could reshape the economic landscape for everyone—from middle-class workers to big corporations. In this article, we'll discuss these proposals and explore their potential impact on your wallet.

Rather watch instead?

Tax Proposals for the Middle Class

The Extension of the Tax Cuts and Jobs Act

One of Trump's key proposals is to extend the Tax Cuts and Jobs Act (TCJA) from his previous term. This act, which initially lowered tax rates for many, is set to expire next year. If it does, everyone’s taxes are likely to go up. Here’s what that could mean for you:

Current Tax Rates

    
• Up to $11,600: 10%
    
• Up to $47,000: 12%
    
• Up to $100,000: 22%
    
• Up to $192,000: 24%
    
• Up to $243,000: 32%
    
• Up to $660,000: 35%
    
• Above $660,000: 37%

Potential Increases if TCJA Expires

If the TCJA expires, the tax rates could rise across the board. For example:

    
• The 12% rate could increase to 15%.
    
• The 22% rate might jump to 25%.
    
• The highest rate could climb to 39.6%.

This marginal tax bracket system means that the more you earn, the more you pay in taxes, but not all your income is taxed at the same rate.

Eliminating Taxes on Tips

Trump's proposal to eliminate taxes on tips is good news for those in the service industry, like bartenders and waitstaff, who rely heavily on tips. This change could put more money directly into their pockets without Uncle Sam taking a cut.

Increasing the Standard Deduction

The standard deduction is the amount you can subtract from your income before taxes are calculated. For 2024:

    
• Single Filers: $14,600
    
• Married Filing Jointly: $29,800

By increasing this deduction, more of your income would be tax-free, meaning you’d pay less in taxes overall.

Corporate Tax Proposals

Maintaining the 21% Corporate Tax Rate

Corporations currently enjoy a 21% tax rate, thanks to the TCJA, which was a significant reduction from the previous 35%. If Trump’s proposal to maintain this rate is successful, it could benefit businesses by allowing them to keep more profits for reinvestment.

Understanding Double Taxation

Double taxation occurs when profits are taxed at both the corporate and personal levels. For instance, if a company makes $1 million and pays 21% in taxes, it’s left with $790,000. If the owner then takes this as income and pays 24% in personal taxes, the total taxes paid significantly reduce the net income. By keeping the corporate tax rate low, businesses could retain more earnings.

Cutting Payroll Taxes

What Payroll Taxes Fund

Payroll taxes fund Social Security and Medicare. Employees currently pay:

    
• 6.2% for Social Security
    
• 1.45% for Medicare

Employers must match these contributions, doubling the burden on small businesses. Trump’s proposal to reduce these taxes could ease financial pressures on both workers and employers.

Example: Payroll Taxes for Dentists

Consider two dentists:

    
• Dr. Smith (Income: $200,000)
    
• Dr. Johnson (Income: $400,000)

Both would pay the maximum Social Security tax on $160,200 of their income and 1.45% for Medicare on their full income. Reducing these taxes could mean significant savings.

Taxes on Foreign Imports

The Universal Based Tariff

Trump suggests a 10% tariff on all imported goods, aiming to encourage the purchase of American-made products by making foreign goods more expensive.

Specific Tariffs on Chinese Goods

In addition to the universal tariff, Trump proposes raising tariffs on Chinese imports to 60% or more. This move is designed to reduce dependence on Chinese products and bolster American manufacturing.

What Do You Think?

With these proposed tax changes on the horizon, it's crucial to consider how they might affect you. Will these reforms help the economy, or do they raise concerns?