A single person, a family of four and a small business owner all making $60,000 will save money under the new tax law that took effect this year.
That is according to Caryn Nelson, owner of Caryn Nelson CPA, who crunched the numbers for these hypothetical scenarios. Nelson said she thinks individuals will benefit more from the tax bill than widely expected.
On Dec. 22, following weeks of controversy and debate, President Donald Trump signed the new tax bill into law. The bill, which represents the largest tax overhaul in 30 years, has generated a lot of coverage and confusion in the month since.
To understand the new law, the Jewish Exponent reached out to several accountants to get their take on how it will affect individuals. Overall, the accountants lean toward most individuals seeing a reduction in their taxes.
“The answer, like everything relating to taxes, is it depends,” EisnerAmper Senior Manager Seth Moskowitz said. “Generally speaking, your taxes will probably go down, unless you fall into a category where you were just taking advantage of all these deductions that are no longer available, to the point where the rate reduction doesn’t make up for it.”
While the accountants didn’t agree on everything, they are mostly in consensus on the biggest changes in the tax code.
The most significant is the elimination of most deductions, while the standard deduction nearly doubles. This will probably cause more people to take the standard deduction, rather than itemize their deductions, potentially simplifying taxes. The state and local tax deduction will also be capped at $10,000.
Moskowitz said this is why he believes individuals who, in the past, have taken a lot of itemized deductions, could see taxes go up — though this group is certainly in the minority.
To make up for the loss of deductions, the new law reduces tax rates and expands tax brackets.
Another important change is an expansion of the “pass-through” provision that allows small business owners — who make less than $157,500 if single, or $315,000 if married and filing jointly — to claim a 20 percent deduction on qualifying business income. Under the old tax bill, the “pass-through” deduction only applied to people who owned businesses that manufactured, farmed or built in the United States, but now most small business owners will be able to claim this as well.
“With extra money in the pocket of businesses, they can hopefully buy new equipment and hire new employees,” Nelson said. “My understanding is that there have been a lot of companies that have come out and said, ‘Because of this, we’re going to give some year-end bonuses to people’ and things of that nature.”
Another important change is the doubling of the Child Tax Credit, from $1,000 to $2,000, and an expansion of who qualifies. The credit is also now refundable, meaning that if families don’t otherwise owe money on their taxes, they will receive a refund.
In fact, Nelson said, people with children are going to be one of the groups that benefits most from the tax bill overall.
Besides the three hypothetical situations, Nelson said she also ran the numbers for three clients: a retired couple who have retirement income, a working couple with a very nice living and a self-employed individual. All three of them saved money, she said. The retired couple actually saved more the 10 percent under the new bill.
“On an individual case-by-case basis, it’s going to be a little bit different, depending on where you are, where you live, how much you pay in state and local income taxes, how many children you have,” Nelson said.
One tax provision that may particularly interest the Jewish community is the expansion of the 529 plan, which were tax-free accounts for college savings. Now, money in the accounts can go toward other education as well, such as day school tuition.
People in states with higher income and local taxes, such as Pennsylvania or New York, will probably not benefit as much as those in other parts of the country. That is because the state income deduction has been capped at $10,000, which is “a drop in the bucket,” said Bob Charron, partner-in-charge of the tax department at Friedman LLP.
While Charron said his own taxes will go up, a client of his will see taxes go down by $56,000 because of lower brackets and the “pass-through” deduction on a several hundred-thousand dollar partnership income.
Charron also noted that pieces of the bill’s language are still unclear, creating additional confusion — at least for now.
“It’s all over the place,” he said. “In many cases, it’s close to break even, but I’ve seen extremes. I’ve seen people who are going to get hurt by it because they’re losing their large state and income tax deduction, and I’ve seen people that have been helped by it.”
In 2025, the tax cuts are set to expire while the elimination of most deductions remains, which would cause tax hikes, particularly for those in lower income brackets.
However, Moskowitz said it’s quite possible the cuts will be extended, or that the tax bill could be reworked. He said it’s unlikely that the tax cuts would simply be allowed to expire. Under President George W. Bush, the situation was similar, and most of the tax cuts were extended every year.
“Politically, it doesn’t make sense to increase individuals’ taxes,” Moskowitz said. “It always make sense that they would extend it at that time, and this is just a budgetary issue to get the bill passed.”
Nelson attributes concerns around the new tax bill to politics, as well as to a general fear of change.
“I don’t think most people understand what this is going to do to them until they meet with their accountants and find out what the changes really mean for them,” Nelson said. “Everyone I’ve spoken to is terrified to find out what this is going to do to them because the narrative is that, it’s either not going to wind up doing anything, or they’re going to pay more.”