It’s easier to meet someone who’s better off as a result of the Tax Cuts and Jobs Act than the media would have us believe. For instance, Ashley is a big winner as a result of the Tax Cuts and Jobs Act.
According to the analysts at The Tax Foundation, “Ashley is a single mom and owns her own business. This year her successful business will make $60,000. Ashley is very thankful for her mom, who cares for her one son, Jackson, when she is working many long hours, even on nights and weekends, as a small business owner. Without the tax reform law, Ashley takes $8,330 in personal exemptions and a standard Head-of-Household deduction of $9,550. This leaves her with a taxable income of $42,150. At her income level, she would pay $5,642.50 in federal income taxes, except that she qualifies for a $1000 child tax credit, which brings her final bill to $4,642.50.”
Under the new tax law, Ashley will benefit in a few different ways. First, although personal exemptions are eliminated, Ashley’s standard deduction will increase to $18,000, nearly twice as much as before. Secondly, and of critical importance to small business owners like her, Ashley can now also deduct up to 20 percent of her income because her business is a pass-through entity, meaning her business income “passes through” to her as an individual. This means she deducts another $8,400 (or 20 percent of the $42,000 left after her standard deduction). This means Ashley has a total taxable income of $33,600. At her rate, this income would result in $3,760 in taxes before the child tax credit. Thirdly, Ashley also benefits from the doubling of the child tax credit from $1000 to $2000. This leaves her with a final tax liability of $1760. This means Ashley gets a tax cut of $2,882.50.
During the final debate on the bill, Chuck Schumer said “the middle class would only get a pittance.” Making $60,000 a year is certainly in the middle class. Saving almost $3,000 certainly isn’t a pittance. That’s a significant tax cut, one that I’m betting Ashley will certainly make good use of.