First, the disclaimer. The proposed tax plan has so few details that it’s tough to discuss its impact with any degree of accuracy. I accept that caution, but so should all the people who are flag waving supporters of this plan. Last time, I wrote how a couple’s taxes might be affected, now let’s look at a single mom’s taxes. This mom has a good income, $60K/yr, and was left, from a death or divorce, with 2 children. She has a house, worth $260K with a $210K mortgage, putting the payment at $1000/month, or 20% of her monthly income. Her itemized deductions total $19,124. This includes mortgage interest, property tax, state tax, and donations. With 2 children, she has $12,150 in personal exemptions, and ends with a taxable $28,716 and a federal tax of $3,845. The new plan/proposal? She gets a standard deduction of $12,000. Since her mortgage interest and donations don’t exceed this, she doesn’t itemize. Her taxes are simple, to be sure. 10% of the taxable $48,000, or $4,800. Nearly $1,000 more.
What we don’t know is what extras will be offered to families with children, all we have is the vague line, “tax relief for families with child and dependent care expenses.” Hopefully, this will help, but keep in mind, the current Dependent Care FSA (flexible spending account) benefit is lost when the child turns 13. If you think your child’s cost drop at 13, you don’t have kids of your own. And I am still looking at the line, “Protect the home ownership and charitable gift tax deductions.” Home ownership, not interest, which again, gives us just enough ambiguity if the property tax deduction remains.