The Tax Cuts and Jobs Act nearly doubled the standard deduction and eliminated or restricted many itemized deductions. As its name implies, it cut individual, corporate, and estate tax rates. The lower corporate tax rate is one of the key components of the Act. This cut is said to be a major factor in corporate profits and job creation. Two tax reforms that were discussed in the podcast by AICPA are the reduction in corporate tax rates and qualified business income deductions. By using knowledge of these two reforms, I have the possibility to reduce an individual’s tax burden by enforcing effective tax planning.
The Tax Cuts and Jobs Act (TCJA) has significantly reduced the number of people requesting itemized deductions and the average tax savings that result. The new law tax incentives reduced the tax liability by deduction, the tax rate applied each year, the impact of the alternative minimum tax, and the total limit of individual deductions that were applied in 2017 (Gale et al., 2019). Effective tax planning can be implemented as a measure to lower tax rates. Moreover, it will cause an increase in after-tax profit on labor, savings, and investment, which has a positive impact on the size of the economy. Research also underlines that through the substitution effect, these larger after-tax rewards stimulate additional work effort, savings, and investment (Gale et al., 2019). Another benefit of using a tax cut is that it reduces the value of existing tax distortions. Additionally, it moves the composition of economic activity away from current tax incentive sectors while retaining the level of economic activity.
In conclusion, new tax law reforms related to the tax rate reductions will eventually contribute to a greater economy. I would use the obtained knowledge to reduce an individual’s tax burden through effective tax planning. This process would include planning of the work, investments, and savings. While the rate reduction would increase the after-tax return these indicators might also increase the after-tax income people get from their existing level of activity. Moreover, they could reduce the need to work, which in turn, contributes to the reduction of an individual’s tax burden.
Reference
Gale, W. G., Gelfond, H., Krupkin, A., Mazur, M. J., & Toder, E. J. (2019). Effects of the tax cuts and jobs act: A preliminary analysis. National Tax Journal, 71(4), 589-612. Web.