Where We Stand: Taxes
HERE’S A QUICK LOOK at the world of taxes.
- The tax code was revamped in 2017—the most extensive rewrite since 1986. Most of the 2017 tax cut goes to corporations. The new law is a mixed bag for individuals, who will enjoy lower tax rates but also lose valuable deductions. Most households will see their tax bill decline in 2018, but a significant minority will pay more. Despite hopes that the tax code would be simplified, that goal proved elusive. The tax code remains littered with a flabbergasting array of special taxes, deductions, credits and tax-favored savings accounts.
- The standard IRA contribution limit for both 2017 and 2018 is $5,500. The contribution limit for 401(k) plans is $18,000 for 2017 and $18,500 in 2018.
- Pew Charitable Trusts found that 36.2% of all workers don’t have access to an employer-sponsored retirement plan, whether it’s a traditional pension plan or a 401(k) plan. For these workers, it’s especially important to contribute to an IRA and to fund a regular taxable account.
- An estimated 44% of households won’t pay any federal income tax in 2017, according to the Tax Policy Center, which is a joint venture of the Urban Institute and Brookings Institution.
- For all taxpayers, the average federal tax rate in 2015 was 14.3% of total income, according to IRS figures. The vast majority of taxpayers were in the 15% marginal tax bracket or lower. Just 3% of tax returns were hit with the alternative minimum tax.
- New York, Hawaii and Maine have the highest total state tax burden, while Alaska, Delaware and Tennessee have the lowest, according to WalletHub. The ranking considers property taxes, individual income taxes, and sales and excise taxes.
- Some 6% of the federal government’s revenue comes from the corporate income tax and just 0.6% from the federal estate and gift tax, according to a March 2015 report by Congress’s Joint Committee on Taxation. These figures pale next to the 79.7% that comes from taxes on individual incomes, such as income taxes and Social Security payroll taxes (though, to be fair, a portion of these payroll taxes are paid by employers).
Next: Income Tax Basics
Blog: Investment Taxes: 10 Questions to Ask