/ Taxes

Why Trump will increase your taxes and how to avoid it

In this post you will learn :

  • How will Trump increase income tax?
  • How much you will pay extra (or save) per year if Trump's tax plan gets approved?
  • How to avoid it and minimize your taxes under the new Trump administration?

With the new Trump administration, he made the promise to simplify the tax code. However, if look closer, there is a TAX INCREASE for the marginal rate for the middle class. What??? A tax increase you might say?? Since when a republican is proposing a tax increase for the middle class? Or is he just a democrat pretending to be a republican? Isn't Trump supposed to boost the economy by lowering taxes? Well this is unfortunately not true according to his plan. Either you were too busy drinking their Kool-aid or you just didn't bother to look at it.

Since when a republican proposing a tax increase for the middle class?

In this blog, we help you understand what affects your wallet and help you see through the BS. Since tax is one of your biggest expense, let's take the time to understanding it.

The following table compares the Trump tax plan and the current tax rate. The table is taken from the current IRS tax rate [^3] and the Trump's tax plan [^2].

Single Married jointly Current tax rate Trump tax rate
$0 $9,325 $0 $18,650 10% 12%
$9,326 $37,500 $18,651 $75,000 15% 12%
$37,501 $37,950 $75,001 $75,900 15% 12%
$37,951 $91,900 $75,901 $153,100 25% 25%
$91,901 $112,500 $153,101 $225,000 28% 25%
$112,501 $191,650 $225,001 $233,350 28% 33%
$191,651 $416,700 $233,351 $416,700 33% 33%
$416,701 $418,400 $416,701 $470,700 35% 33%
$418,401 $470,700 40% 33%

Can you spot the tax rate increase? It is highlighted in red. If you make between 112500$ and 191650$, brace yourself for a higher tax bill. Of course, the 1st bracket also has a tax increase (if you make less than 9325$), but hopefully this is not your marginal tax rate. Actually, this tax increase only affects you if you're single. For married/filing jointly, Trump will actually get rid of the marriage penalty. This is a great news if you are married and filing jointly.

This tax increase only affects you if you're single

Let's dig into the number to see how much more you will pay in taxes. Here are few scenarios. The number below represents the modified adjusted gross income (MAGI) which is after all deductions:

  • Single filing    income of 120 000$
  • Married filing income of 120 000$
  • Single filing    income of 190 000$
  • Married filing income of 190 000$
Income of 120 000 $

In this case you would save some money whether you're single or married. Here is your total taxes for all brackets:

For single :

  • Total Federal tax (current rate) : 26 582$
  • Total Federal tax (Trump's tax-rate) : 25 725$

You would save 857$ with the Trump's tax-rate

For Married :

  • Total Federal tax (current rate) : 21 478$
  • Total Federal tax (Trump's tax-rate): 20 250$

You would save 1228$ with the Trump's tax-rate.

Income of 190 000$

In this case you would save some money whether you're single or married. Here is your total taxes for all brackets:

For single :

  • Total Federal tax (current rate):          46 182$
  • Total Federal tax (Trump's tax-rate):  48 825$

You would lose 2643$ with Trump's proposed plan.

For Married :

  • Total Federal tax (current rate):          40 085$
  • Total Federal tax (Trump's tax-rate):  37 750$

You would save 2 335$ with Trump's proposed tax plan.

Here's a plot over different income levels:

Looking at this graph, we can see that the tax increase will start around 137 000$ and end around 460 000$.

Assuming that Trump gets elected and you have no short-term plans of getting married, then you want to make more than 460k$ to avoid having to pay more taxes. Less ignore the case where you want to make less than 137 000$. The goal of this blog is to help you reach a higher bracket and help you pass above this magical 460k$ of income (in case you're not there yet). Even if you are, it won't hurt to learn about new ways to make more money to achieve truly financial independence.

How to avoid the tax increase

If you want to avoid the tax increase, there are a few options:

  • Make less than 137 000$ as a single filer.
  • Make more than 460 000$ as a single filer.
  • Get married and file jointly.

Of course you shouldn't get married just in the hope of saving on taxes. There are in fact priceless benefits to getting married and those tax saving will be pale in comparison. But is this just a coincidence? Was this part of Trump's masterplan?

The marriage penalty can be a big deal, especially in community property states (such as California)[^1]. So getting rid of it seems like a fair thing to do.

Will this tax rate affect you?
Will this tax rate spur the economy? Tell me what you think.