In December of 2017, the Senate passed the Republican tax reform bill. This one topic has caused such a huge debate among millions of Americans since the president first announced the proposed bill. It caused tons of controversy because this is the first significant reform of the US tax code since 1986. In addition to that, the tax bill would increase our national debt deficit by 1.5 trillion dollars over the next decade. From those few details mentioned, you can see why this bill has stirred up Americans in a way that hasn’t been done before.
While the tax reform is one that is without a doubt very controversial you may be wondering how does this all affect US? Unless you’re an economist or tax expert, all of this may seem very boring and can be very overwhelming. However, I’m here to break down 3 ways I think the tax reform can affect black people positively.
1. We will all increase our take-home pay and keep more money in our pockets.
One of the staple features of the tax reform is the change being made for both the individual and corporate tax rates. While it has kept the seven income tax brackets the tax rates for 2018 and beyond have been lowered. In addition
to the tax brackets being lowered, the standard deduction has been doubled. You ask what does this mean in the most simplistic terms. Well, I’m here to help.
Let’s start with standard deductions. A standard deduction essentially means “x” amount will be deducted from your taxable income which will ultimately decrease your tax liability (what you owe Uncle Sam). For single filers, the standard deduction has increased from $6,350 to $12,000; for married couples filing jointly, it’s increased from $12,700 to $24,000.
The ultimate goal of this is to encourage more people to take the standard deduction as opposed to an itemized return, but that’s an entirely different article. As far as standard deduction goes, with this increase, we owe less money and when you owe less you gain more.
Additionally, the lowering of the tax rates mean that most working and middle-class black people who take the standard deduction will not only see a decrease in tax liability because of that, they will also be taxed at a lower rate. This can be a huge win depending on how you file your taxes. With that said, we can all expect an increase in our coins reflected in our February 2018 paychecks.
2. The child care tax credit has been doubled.
Now, this topic is one that has been very controversial for many reasons of which I will not jump into today. What I will say is what this could potentially mean for those of us with dependent children under 17 years old. The childcare credit has increased from
$1,000 to $2,000 and is now also available, in full, to more people. The entire credit can be claimed by single parents who make up to $200,000, and married couples who make up to $400,000. This is another example of how we could decrease our tax liability to the government.
Remember standard deductions from the tip above? This is somewhat different in regards to how it works for you. A tax credit broken down essentially is “x” amount of money that will be deducted AFTER your taxable income has been taxed. Further meaning what you owe to Uncle Sam will now be “amount owed” – “child care credit” = new amount which sometimes results in what we all love a bigger tax refund. This can also prove to be a way to get the biggest bang for our buck and keep money in our pockets.
Traditionally, black families procreate at higher rates compared to our counterparts. With this credit now being doubled mothers and fathers now have an opportunity to keep a few extra dollars in their pockets.
I know that got a little conceptual based, but hopefully, it shed light on standard deductions vs tax credit. If you want me to go more in-depth drop a comment below and we can explore further together.
3. There is a new temporary credit for non-child deductions, like elderly adults.
We’ve all heard the phrase growing up “it takes a village.” This concept of “community” is one that black households hold near and dear. Traditionally and historically black children are
raised in multigenerational homes. Meaning, we don’t play about our grandmothers and grandfathers because a lot of us are raised by grandparents as opposed to birth parents.
With that said, what happens when the child becomes the adult and we are expected to care for our grandparents? A common argument and a running joke among my brothers and sisters and grandmother is that when my nana gets too old were gonna put her in a nursing home–all jokes of course. While this is common for other cultures, black people take care of our grandparents and will be damned if they enter a nursing home due to old age. How does this all tie in?
With the new tax reform, a new temporary credit for elderly adults and disabled adult children has been added to aid in their care. This new credit means that all adult children who care for their elderly adult family members or disabled adult family members will be allowed to utilize that credit to decrease their tax liability.
This can potentially help black people in ways it hasn’t helped before. Being able to care for our grandmothers and grandfathers is no easy feat. We take pride in our obligation to the ones who shaped our growth and development. Now the government will give us some aid with something we do from our hearts freely.
All in all, this topic is one that can go on forever but I wanted to share some positive ways black people can take advantage of the new tax reform. My goal as always is to enlighten and educate because in the end it really does take a village!
**DISCLAIMER**
This article does not serve the purpose as tax advice and you should consult your financial advisor or tax account for further direction.
Brandon Herring is a financial professional by day and ratchet scholar by night. A graduate of the University of Illinois at Urbana Champaign his areas of specialty include personal finance, entrepreneurship, business, and marketing. He Is a self-proclaimed know it all with a love for his community, and seeks to contribute philanthropically through financial education amongst African Americans.
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