Tax breaks, deductions and credits – Which income groups benefit - Washington Post

Tax breaks, deductions and credits – Which income groups benefit

Some tax breaks are for the rich.
Others for the poor. Which are for you?

By Reuben Fischer-Baum and Kevin Schaul

Updated Nov. 2, 2017

House Republicans released their long-awaited tax plan Nov. 2. The framework touches on many parts of the tax code, but two critical areas are tax deductions and credits. These reduce how much taxpayers owe, but they affect income groups differently. How could the proposed changes to these policies affect your taxes?

How to read these charts

Each shape represents a tax break.

Tax break

Tax break

Amount of all

tax breaks

added

together

This break is most

beneficial at lower

income levels ...

... but is less

beneficial at higher

income levels.

Income

Enter your adjusted gross income (AGI) to view the charts below from your perspective. AGI is your income minus some “adjustments,” like 401k contributions. If you don’t put a lot into retirement, your AGI will probably be close to your total income.

My adjusted gross income is:

Most beneficial tax deductions and exemptions, 2015

Deductions and exemptions reduce your tax bill by decreasing your taxable income.

	deduction	Mean deduction*
	Personal and dependent exemptions (?)	$7,700
	Standard deduction (?)	$7,100
	Home mortgage interest (?)	$700
	Medical/dental expenses (?)	$500
	Employee business expenses (?)	$400
	Real estate taxes (?)	$400
	Charitable contributions (?)	$300
	State and local taxes (?)	$200
	Other deductions	$200

* Mean deduction is the total deduction amount received by the income group divided by the number of returns in that group, including those that did not receive the deduction.

Note: Returns for those filing singly and those filing jointly or in other categories are lumped together. Tax returns cannot claim both the standard deductions and itemized deductions. Total deductions and exemptions can exceed adjusted gross income, but the excess does not affect taxes owed, as taxable income cannot drop below zero.

Related

All your major questions about the GOP tax plan, answered

Taxpayers – except the highest earners – are currently eligible for tax “exemptions” to reduce their taxable income. In 2016, Americans could take a $4,050 personal exemption from their income (double if filing as a married couple), and then get additional exemptions for dependents.

After exemptions taxpayers can further reduce their taxable income by taking tax deductions. 69 percent of taxpayers in 2015 took the “standard deduction,” a fixed amount that is currently $6,300 for (most) taxpayers filing singly.

The remaining taxpayers – mostly in higher income groups – “itemized” their tax returns, meaning they chose to take advantage of more specific tax deductions based on their expenses. The deductions came out to more than they would have gotten through the standard deduction.

Here’s what the Republican tax plan would change about deductions:

• Republicans want to nearly double the standard deduction to $12,000 for those filing singly and $24,000 for those filing jointly. At the same time, the framework calls for the repeal of exemptions, consolidating these different parts of the tax system.
• The plan aims to simplify the tax code by gutting many itemized deductions, although charitable contributions and mortgage interest would be retained. The state and local taxes deduction (SALT) would be replaced by a property tax deduction with a $10,000 cap. Under current law, SALT lets you deduct state and local income or sales taxes you owe from your federal taxable income and largely benefits blue states with higher taxes.
• The Home mortgage interest deduction would be capped at new mortgages of $500,000 or less, down from $1 million.

Most beneficial tax credits, 2015

Tax credits are subtracted directly from taxes owed.

	credit	Mean credit*
	Earned income credit (?)	$500
	Additional child tax credit (?)	$300
	Child tax credit (?)	$200
	Nonrefundable education credit (?)	$100
	American opportunity credit (?)	$100
	Other credits	$0
	Child care credit (?)	$0
	Foreign tax credit (?)	$0
	Residential energy credits (?)	$0
	General business credit (?)	$0
	Prior-year minimum tax credit (?)	$0

* Mean credit is the total credit amount received by the income group divided by the number of returns in that group, including those that did not receive the credit.

Note: Returns for those filing singly and those filing jointly or in other categories are lumped together.

Credits can reduce federal income taxes owed down to zero, but “refundable” credits can reduce them even more, allowing some taxpayers to receive a net gain from the federal government after filing.

Here’s what the Republican tax plan would change about credits:

• The plan calls for an expansion of the child tax credit, increasing its value to $1,600 from $1,000. The plan also provides an additional $300 credit for “non-child dependents” and creates a new “Family Credit.”

[All your major questions about the GOP tax plan, answered]

Just part of the picture

Of course, the tax policies we’re looking at above are just part of U.S. federal tax code. Actual income tax rates are central to tax reform proposals; the Republican plan would reduce the seven income brackets currently used to four, lowering rates for many but increasing them for some in the lowest bracket. It also calls for the repeal of the estate tax after six years.

The plan also proposes a large, temporary decrease in the corporate tax rate from 35 to 20 percent, among many other changes to the business tax code.

About this story

Data from the Internal Revenue Service – all figures are estimates based on samples of tax returns. Total exemptions and standard deductions are from Table 1.2, itemized deductions data is from Table 2.1 and credits data is from Table 3.3.

Additional assistance provided by the Tax Policy Center and the Center on Budget & Policy Priorities.

Originally published Sept. 27, 2017.