President-elect Donald Trump gained the support of millions of Americans with his tax proposals, which include lower income tax rates and a simplification of the tax code that will reduce taxes for most Americans. However, not everyone would benefit from Trump's tax plan. Here are two specific cases in which a taxpayer's deductions could be reduced during a Trump presidency.
Eliminating personal exemptions would hurt big families
One major part of Donald Trump's tax plan involves more than doubling the standard deduction amount to $15,000 for single filers or $30,000 for married couples filing a joint return. When compared to the $6,200 and $12,600 standard deductions we have now, this may seem like a massive universal tax cut.
But, not so fast. Trump also proposes getting rid of the personal exemption, which reduces taxable income by $4,050 for each taxpayer, as well as $4,050 each for their spouse and any dependents claimed on their return. For example, I'm married with one child, so I'll get a $12,150 personal exemption on my 2016 tax return.
For most people, this change will still work in their favor by a significant margin. In my personal situation, the loss of my $12,150 personal exemption would be more than offset by the $17,400 increase in my standard deduction.
However, larger families whose personal exemptions are more than Trump's proposed increase in the standard deduction could see their deduction go down. Let's say that my wife and I had four children. Our family of six would be entitled to $24,300 in personal exemptions, as well as a $12,600 standard deduction, for a total of $36,900 in deductions. Under Trump's proposed $30,000 standard deduction for married couples, we would lose $6,900 worth of deductions.
In a nutshell, Trump's standard deduction and personal exemption plan is mathematically unfavorable for married couples with more than two dependents and for single taxpayers with more than one.
It's also worth mentioning that Trump's plan includes an expanded deduction for child care expenses, which could potentially help to offset the lost personal exemptions for many large families with younger children.
No more head-of-household filing status
Another potentially negative Trump tax change is the proposed elimination of the head-of-household filing status, which was used by more than 22 million taxpayers in the most recent year for which complete data is available.
The head-of-household status allows single taxpayers who have one or more dependents to add $3,000 to their standard deduction. This tax filing status is often used by single parents and taxpayers whose elderly parents reside with them, to give a couple of examples.
For millions of taxpayers, eliminating the head-of-household status would sharpen the sting of losing the personal exemption. I did an analysis of Trump's standard deduction plan using current IRS data, and the plan is mathematically unfavorable for head-of-household filers with any dependents. Because one of the main qualifications for the head-of-household status is having at least one dependent or other qualifying person, this means that 22 million people are likely to lose some of their deduction during Trump's presidency.
The bottom line
If Donald Trump's tax plan is implemented (which is far from certain), most Americans will see their taxes go down. As I discussed in another article, the increased standard deduction alone will result in an additional $4,970 deduction for single taxpayers and $5,918 for married joint filers, even when accounting for the loss of the personal exemption.
Donald Trump is certainly in favor of lowering taxes for most Americans. However, saying that most people will benefit from Trump's plan is very different from saying that everyone will benefit. Because we'll have Donald Trump as our president for at least the next four years, it's important to know if you might belong to one of the groups that could see a tax increase.
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