The House’s proposed changes to the tax code, and there are a lot of them, are pointing to a real change in the way our income is going to be taxed. It is not so much about the tax rates and brackets, though they matter, but about the strong move towards simplifying the tax code. The highlight here is the huge change in how taxpayers approach deductions and how the proposed changes will make itemizing deductions a thing of the past for most taxpayers who currently itemize.
You won’t need to hang on to your receipts for medical expenses or sales tax expenditures and there won’t be any need to pay attention to what you spent to move from one home and job to another. That is simplification! Of course, being as many of us are used to keeping track and deducting a variety of expenses, things will really feel different. Human nature being what it is, a larger standard deduction won’t have quite the same appeal as knowing you can deduct certain expense items specifically based on what you spent. And when you factor in the elimination of the personal exemption, suddenly that increase in the standard deduction doesn’t look like much of a deal at all.
Also interesting is how, with the increased standard deduction, although the mortgage and property tax deductions are retained with limits, it will be very hard for most taxpayers to get much satisfaction out of deducting what is left to claim under those items when compared with the standard deduction. Still, it will be helpful to some extent for a few taxpayers with high taxes and large mortgages. The availability of the charitable deduction may be attractive to these taxpayers as well, although one wonders how charitable contributions will be affected by the increase in the standard deduction.
It is important for taxpayers to pay attention to the proposals and take them seriously: if implemented things will be very different in 2018 and your planning needs to keep pace.