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.
- 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