Changes in Italics.
Okay, this will be long and incomplete for now, but here goes..
Follow along here: https://www.irs.gov/pub/irs-pdf/f1040.pdf
Warnings: This is NOT a simplification of the tax code. I think that's a pipe dream and as most know I'm not a flat tax fan, consumption tax fan nor will I likely argue for anything other than a convoluted progressive tax scheme, if we're going to have an income tax.
So let's take care of the hypocrites first: Form 8777
This form will flow to be the new line 45 (shifting all other up one). On this form will be "voluntary additional income taxes paid". It will be a place for all those "fair share" crybabies to put up or shut up, and in addition to this, allow them to self direct 65% of it. That's right, you want to kick in more for SS, or education or military spending? You can on this form. On the form will be listed a bunch of departments and programs (SNAP, WIC etc) where if you elect to pay an additional $1,000, $650 will go to that program, $350 to the general account.
We'll even have infrastructure with a listing for the state to which the finding will go. Mah roads.
Now let's take care of the lower wage earners:
For earners with less than $50/100k of AGI, they get an automatic, above the line deduction of $12k. This effectively means you can earn up to $12k and pay zero tax on it. The next $8 is automatically taxed at 10%. So someone that makes $20k will owe $800 in tax, no exceptions, it's the bare minimum. Character of income is irrelevant, except taxable SS or pensions. Retirement payments aren't subject to the mandatory tax. For AGI's over $50/100k but less than $300/500 the numbers flip and the minimum becomes $1,200. Over $300/500 has no auto above the line, and has a minimum tax of $3000/5000
The new standard deduction is $20k/40k for all earned income, $5k/10k for unearned. If you don't utilize your unearned SD, it can be applied to your earned income if your AGI is less than $100k/200k, phasing out by $125k/$250k
This means, Omar Jones and his Wife Detri can make up to $70,000 between each other and owe $800. Then every dollar they make up to $88,550 is taxed at 10%, so on and so forth using the marginal rates. That means if they made $100k together, they would pay $5,873.
The first 70k is effectivelywiped out. That leaves 30k of income taxable (100k-50k standard deduction & automatic above the line of 12k +8k) the first 18,550 is taxed 10% so $1,855 and the rest (30k-18550) $11,450 taxed at 15% or $1,718, then add the $800 min for a total of $4,373 or effectively 4.3% of their income.
If you have over $1m of any combination of income, your standard deduction or itemized deductions MUST REDUCE INVESTMENT INCOME, LOWEST RATES, FIRST. It should be noted here that this will greatly reduce the need for something like AMT.
So under this new scheme, lower wage earners get a YUGE tax break, and higher earners still get the benefit of the higher itemized that comes with that kind of income, but it will push up effective rates as the long term cap gains and qualified Dividends are wiped out first.
(Note itemized rules dont' change, other than the income limit reductions shitty Obama put back in.)
But Beans what about mah charitable deductions? don't worry homie I'm right there with you, give a lot of money and time to charity.
If you itemize, there is no change. If you take the standard, you now get an above the deduction for charitable deductions, it will be the new line 35.
Group 1 has 50% limit on deductibility of charitable donations, lifetime carryover, including estate taxes. To be in group 1:
Earned income <$300k/600K
Investment income <$25k
Group 2 has a 30% deductibility limit, same lifetime limit. (can only reduce AGI by a max of 30% using Charitable donations) To be in group 2:
Doesn't qualify for group 1
AGI <$3m for both married and single
Group 3 has a 25% deductibility limit, with a lifetime carry over.
Current tables change to for married (take half for single):
0 - 18550 = 10%
18551 - 300,000 = 15%
300,001 - 999,999 = 20%
1,000,000 - 5,000,000 = 23.5%
5,000,001+ = 27%
Alternative min tax
This shit becomes simple as fuck.
If your AGI <500k/1m, you are exempt.
If your AGI is 500k/1m - 2.5m/5m you min tax rate is 21%
If you're above that your min rate is 24%.
Taxpayer can elect to "save" 50% of their total AMT (amount of additional tax over regular due to high wage earnings) and apply it as a credit to their estate taxes. So for instance, if someone pays $32million in AMT over 60 years, they get a $16million credit on any estate taxes upon transfer.
Otherwise, 20% of the prior years AMT can be used as a credit for current year's AMT to the extent your income is from investments. So if 20% of your prior year AMT is $8,000 and 40% of your income is investment income, you get a $3,200 credit. This helps cut the pain of losing the favorable Cap Gains and Dividend rates with the simplified AMT.