A few times during Christmas and New Years I have had conversations with people who are skeptical about the new Tax Reform plan that was signed into law. Knowing their situations I estimated that they would end up paying less taxes with the new plan.
Under the new tax plan, most of the tax brackets have been lowered and the standard deduction has gone up. Fortune has a good breakdown comparing the new and old tax brackets. On the flip side, there are now limits to the mortgage interest deduction as well as state, local, and property taxes.
However, no amount of logic trumps peoples’ political views (see what I did there?). These people were adamant that they would end up paying more in taxes and only “the rich” would benefit. I tend to avoid political dogmas and am more interested in the truth. Therefore, I searched for a tax reform calculator that can give a quick estimate if you will be paying more or less (note, this is an estimate and you should speak to a CPA for all tax considerations).
Here is a good Tax Plan Calculator by Maxim Lott. You enter your income and answer the other questions. See below for the results for my family.
How We Will Use The Tax Reform Savings
Since we have no debts, we will use the $4,860 per year to continue to invest in the stock market. Our brokerage account had a 33% gain for 2017 compared to 22% for the S&P 500. Over the last 5 years, our brokerage account is up 71% compared to 54% for the S&P 500. Obviously this kind of performance will not happen every year, but historically the S&P 500 has returned 10% per year over. Therefore, we will continue to invest in the stock market for the long term in order to beat inflation.
I encourage everyone to take a serious look at their tax situation and have a plan regardless if you will have to pay more or pay less. Finding out when you file your taxes is too late.
Readers, how will the new plan affect your tax situation?