1) A tax reform bill was recently signed into law and applied to your tax returns due April 15. Research the tax reform and provided an explanation of 2-3 of the changes that stood out to you. Did the tax reform affect your taxes this year?
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Before this assignment, I was unaware that a new tax reform bill was signed into law and applied to tax returns due April 15. Investopedia posted an article that explains the Trump Tax Reform Plan, and it helped me better understanding what the reform includes.
One of the changes that stood out to me was the change to Personal Income Tax Rates. While the new law retains the same seven tax brackets, rates have been lowered. According to the article, “The top rate fell from 39.6% to 37%, the 28% bracket to 24%, the 25% bracket to 22%, and the 15% bracket to 12%. The lowest bracket remained at 10% and the 35% bracket was also unchanged” (Investopedia). There is a commonality among most brackets of a small decrease in income tax rates. This definitely struck my interest because this means I get to hold on to a bit more of my earnings. Although the changes expire after 2025, individual tax cuts can be extended at a later date.
Another one of the changes that stood out to me is the new law regarding the Corporate Tax Rate. The new tax bill created a single corporate tax rate of 21% and “repealed the corporate alternative minimum tax” (Investopedia). This change stood out to me, because as a business student, I am interested in the effects of this bill on corporations. This tax cut to corporate profits will lead to gains for corporations. The new law regarding pass-through businesses will also give pass through income a 20% deduction. This deduction, however, could encourage high earners to “re characterize regular wages as pass-through income”, so they capped the deduction at “50% of wage income, or 25% of wage income plus 2.5% of the cost of qualifying property”. A pass-through entity is a special business structure that reduces the effects of double taxation, and thus it is susceptible to being used for loopholes etc.
As a supply chain major, I was very curious to learn more about the law’s elimination of Section 199, which is a deduction for businesses that engage in domestic manufacturing and certain other production work. Also known as the domestic manufacturing deduction, this previously gave manufacturing companies in America a tax advantage. I wonder if this new change in the bill will negatively affect the amount of manufacturing occurring in the Americas, as they no longer receive a tax benefit.
Ultimately, I am still a dependent. I plan to file a tax return, so the decrease in the tax rate in my bracket will give me a bigger return. The other aspects of the bill did not affect me for 2019 to my knowledge, but in the future, I can see how these changes will have an affect on my future career and endeavors, and the companies I work for.