Keith Parsons expects to have some unhappy clients in 2018.
Parsons is a tax preparer in Covina, Calif., outside Los Angeles, who looked over some of his clients’ recent tax returns to see how they’re likely to fare under sweeping changes Republicans are poised to pass. For some, taxes will drop. But others will end up paying more to Uncle Sam. “I’ve talked to several of them,” Parsons says. “They’re stunned. They’re all under the impression that they’re going to receive a tax cut.”
The Republican tax bill, which President Trump is likely to sign into law before Christmas, includes $1.5 trillion in tax cuts during the next 10 years. The majority of those cuts will accrue to businesses. About 80% of individuals taxpayers will end up paying less, according to the nonpartisan Tax Policy Center. But 5% of taxpayers will end up paying more, largely because of lost deductions that will raise taxable income.
Lower tax rates are meant to offset the loss of deductions, leaving most people better off. But some taxpayers will get caught in the seams of the new tax structure, by falling into a higher tax bracket, in some instances, or losing so much in deductions that lower rates don’t close the gap. Here’s a sampling of taxpayers who expect to end up worse off under the GOP tax plan:
The California tax preparer. Keith Parsons’ own tax bill will go up under the GOP plan, as it will for many of his clients. Parsons, 61, who’s married with two kids in college, claimed about $30,000 in itemized deductions in 2016. Under the GOP rule changes, his state and local tax deduction will now be capped at $10,000, and he’ll lose the personal exemption for all four family members, or $16,200 worth of deductions. [/restrict]