Morgan Griffith: Saying goodbye to the old tax code
Disclaimer: The Tax Cuts and Jobs Act took effect at the beginning of 2018, so for your 2017 income taxes due this April, you will still pay according to the old tax code and its higher rates. But most should see bigger paychecks this year because the Federal Government will withhold less for 2018 taxes. Read on to learn more.
In the months since President Trump signed the Tax Cuts and Jobs Act into law, many Americans have already enjoyed its benefits. They have noticed that Uncle Sam takes less out of their paychecks, companies are investing here in the United States rather than overseas, and bonuses are being awarded.
Still, some people are worried they have been left behind by tax reform. I think many of these concerns are the result of misconceptions about the tax law.
For example, in their first paychecks of the year, some Americans did not notice a difference in the amount the Federal Government withheld for income tax. But not all employers updated their withholding in time for these first paychecks. Later paychecks should reflect more accurately withholdings under the new tax code.
Reforming the tax code meant many deductions were reduced or eliminated to compensate for lower rates. It’s fair for people who have long used some of these deductions to wonder if their tax bills would rise. But the standard deduction was roughly doubled, meaning many would still benefit overall from tax reform.
Although many deductions were reduced or eliminated in order to streamline the tax code, families can take advantage of an expanded Child Tax Credit, and both the Child and Dependent Care Tax Credit and the Adoption Tax Credit are preserved.
Even the deduction for state and local taxes is retained. This deduction continues for up to $10,000 in taxes paid in state and local taxes in any given year, so few Southwest Virginians will be negatively affected by this change. There have been a lot of complaints about scaling down this deduction, but they come from high earners in high-tax states and high-tax areas like New York City and San Francisco.
Major, well-known companies have announced their plans to hire and invest thanks to tax reform, but tax reform also has plenty to offer small businesses. For those organized as S corporations, partnerships, LLC, and sole proprietorships, 20% can be deducted from the first $315,000 of joint income. For income above this level, these businesses generally can deduct up to 20% on business profits. These provisions are written specifically to apply to small businesses.
Further, buying equipment can be a major expense for small businesses, so tax reform will allow them to immediately write off the full cost of new equipment.
In part because of these improvements to the tax code, most small business owners feel good about their economic future. According to a February survey by the National Federation of Independent Business, optimism among small business owners is at record high numbers, and these owners are ready to express their confidence by spending more on wages and growing their operations.
One criticism that I think is fair concerns paying 2017 income taxes. The code went into effect this year, meaning last year’s income will be taxed according to the old tax code; therefore, the improvements in the tax code won’t be reflected in the return you file in April 2018. I believed it would have been better to apply some of the new tax code retroactively to 2017. This provision was not included in the final bill because many believed it would “cost” the government too much of your money.
Our aim in tax reform was creating a system that would benefit as many Americans as possible. Unfortunately, it’s impossible to create a perfect code. Each person’s unique circumstances will determine whether and to what extent he or she benefits from tax reform.
Nevertheless, I believe the overall effects of tax reform will benefit Americans across the board. More people will have money to spend or save as they see fit. More workers are receiving higher wages and bonuses. More companies are choosing to invest in America.
Tax reform is helping to bring prosperity to Main Street. That’s good news for everyone in our country. To learn more about the Tax Cuts and Jobs Act, visit fairandsimple.gop.
If you have questions, concerns, or comments, feel free to contact my office. You can call my Abingdon office at 276-525-1405 or my Christiansburg office at 540-381-5671. To reach my office via email, please visit my website at www.morgangriffith.house.gov. Also on my website is the latest material from my office, including information on votes recently taken on the floor of the House of Representatives.