November 1, 2019

On December 15, 2017, the Tax Cuts and Jobs Act (TCJA) was filed. The act promised to reduce taxes on average for all income groups in 2018 and 2025, specifically the middle class. According to the Tax Policy Center, those who lived in higher-income households would receive a higher average tax cut, with the biggest portion of tax cuts going to taxpayers in the 95th and 99th percentile of the income distribution. In comparison to our current law, taxes would fall for all income groups in 2018, which would increase the overall average after-tax income by 2.2 percent. Just recently, President Trump has announced that he will further assist taxpayers by cutting taxes for the middle class as a bid for his reelection. With TCJA in place and a promise of further tax cuts, it brings up the question of whether or not the TCJA is effective, and if the passing of a new tax law that allows even more tax cuts would be effective for a higher percentage of American taxpayers.

The TCJA was meant to reduce taxes on average for all income groups in both 2018 and 2025. For most, the tax cuts are hardly even noticeable. It is estimated that the federal tax savings for the extremely wealthy are seeing savings of around $51,000 versus the rest of taxpayers that are seeing less than $1,000. 

One of the reasons why most taxpayers are not seeing as big of a refund is because they did not change their withholdings. If you did change your withholdings when the TCJA was implemented, you would see that the tax changes increased your standard deduction; specifically, the limit on the deductibility of state and local taxes. If you chose not to withhold the proper amount, your tax refund would appear to be smaller than what you probably expected.

Another reason why most taxpayers did not feel the effects of the TCJA is because it benefitted those in a higher income bracket. The decrease in corporate taxes increased corporations’ profits which caused a higher earned income for wealthy households. Those who benefitted from the TCJA have been corporations and taxpayer’s income that is a result of corporate profits. With Trump’s tax cuts largely benefitting the wealthiest class in America, it has not caused an imbalance between average households and those earning a corporate profit.

For most, it can be difficult to understand this 200-page act as it does extensively change the previous tax code. There are some important key takeaways that taxpayers should know before filing again:

  • The TCJA will impact tax filing up to 2025.
  • It changes the tax code for institutions and taxpayers. The new act focuses on cutting individual, corporate and estate tax rates.
  • Nearly everyone has been affected by the TCJA.

If you are a taxpayer that has not felt the benefits of the TCJA, it is important to understand the new tax laws and how it may affect your personal circumstances and help mitigate uncertainty in future tax planning and filing. If you are having difficulty understanding the current tax changes, you can always consult with a tax professional to assist you with your tax filings.

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.