How Rich People Are Going to Game the New Tax System

The Trump administration’s reveal of its new tax cuts represents what will likely be a big bonanza for the wealthy. It won’t, however, help out the bottom third of the U.S. population — nor will it provide big breaks for the middle class. For example, there is no payroll tax reduction, which could help the working class, nor is there an increase in the earned-income tax credit, which would benefit those who work but have difficulty making ends meet. In short, the new tax bill is rife with giveaways and loopholes for those who have a lot of money. That said, there are some things in Trump’s plan that if you’re a worker bee, you can use to help you save money when you do your taxes.

Read on to learn how the rich will benefit from Trump’s new tax plan. And discover how to use some of the changes to your advantage.

1. Businesses that offer new parents paid leave will get a tax credit

A woman working with her child in her arms

If you’re planning on having kids, you may be better off doing it within the next two years. | Monkeybusinessimages/iStock/Getty Images Plus

According to The New York Times, the new bill will provide a tax credit for businesses that offer paid leave to new parents. The credit will be available only for two years, and only in states that don’t already require paid leave for new parents. If you want to have children, consider doing it in 2018 or 2019 so you may be able to take advantage of the credit.

Next: Ba-bye, death tax.

2. The estate tax will be eliminated

John Travolta aerial image of his house and private airport.

The ultra-wealthy have been pushing for an end to the estate tax for years. | Google Maps

Trump’s plan will double the estate tax exemption. (The estate tax is tax paid on real estate, stock, cash, and other assets transferred from dead people to heirs.) Unfortunately, according to The New York Times, the tax affects only a few thousand taxpayers a year. According to The White House, Trump had this to say about eliminating the tax: “To protect millions of small businesses and the American farmer, we are finally ending the crushing, the horrible, the unfair estate tax, or as it is often referred to, the death tax.” If you happen to be in for a big inheritance, 2018 is a perfect year for it.

Next: A tax cut for millionaires — and you, possibly

3. There will be a lower top rate for ‘pass-through’ business income

the tax bill in the ways and means committee office

The new tax bill makes it potentially better for workers to set up as independent contractors. | Chip Somodevilla/Getty Images

Pass-through business income is income that businesses claim on individual tax returns — it “passes through” to business owners and is taxed at his or her same tax rate that applies to salaries and wages. Currently, pass-through business income is taxed at 39.6%, but Trump’s plan will lower that number to 25%.

The new tax will apply to businesses including sole proprietorships, partnerships, and S corporations — all of which already are exempt from taxes on dividends and the corporate tax on profits. According to the Center on Budget and Policy Priorities, this is called the “Trump loophole” because it actually benefits Trump quite a bit. The plan will cost more than $2.4 trillion over 10 years and will cut taxes for millionaires by an average of $200,000 in 2018.

That said, if you’re a salaried employee it might make it worth your while to switch to an independent contractor situation. Just keep in mind that you’ll get a tax break on all profit, but you’ll have to pay for your own health insurance — and get your employer to agree to make your position freelance.

Next: Gimme shelter.

4. You’ll be able to create a corporation to shelter investment income

a woman at a computer getting her taxes done

Will middle-class workers rush to set up tax shelters? | Andrew Burton/Getty Images

Trump’s new plan allows individuals to create corporations that they can use to shelter investment income, according to Vox. Your corporation’s earnings will get taxed at the 21% corporate rate, which is a lot less than the top individual rate, even with the pass-through discount. You can also, as a corporation, deduct all state and local taxes. If you want to pay earnings to yourself, however, you’ll get hit with a dividends tax. If you cash out of your corporation by taking a dividend or sell the corporate stock, you’ll pay a second dividend or capital gains tax. Still, the new corporate tax rate combined with the dividend tax still isn’t as much as the top individual rate if income is earned directly.

Next: Consider a new career.

5. The plan will require tax experts

H&R Block tax services

The new plan could seriously confuse taxpayers. | Drew Angerer/Getty Images

According to The New York Times, all of these new rules are going to seriously confuse taxpayers in the next couple of years. People will be seeking advice regarding how to restructure their businesses and their finances. In addition, the new bill adds in new rules at different times, making it even more complicated for DIY filers. In other words, professional services for tax preparation will likely be at an all-time high, so consider a career in accounting or tax law and cash in.

Next: Paying for private school

6. You can pay for private school tuition through your 529 plan

Blue Miramonte Elementary school with murals

Private schools may see a boost in popularity. | Krista Kennell/AFP/Getty Images

According to Business Insider, Trump’s new plan will enable families to use their kids’ 529 plans to pay for private school tuition. Currently, these accounts are designed to help parents save money for their children’s college educations. The new plan allows families to withdraw up to $10,000 each year for tuition and other expenses related to K-12 schools. If you’ve always wanted to send your child to private school but didn’t have the cash, you can use your 529 plan now.

Next: It’s better to give than receive.

7. You can still reduce your taxes through donations

salvation army red kettle

Donating to charities could lower your taxes. | Tim Boyle/Getty Images

Although the new tax bill takes away a lot of tax credits and most personal itemized deductions, according to Business Insider, the newly limited home-mortgage and charitable gift donation deductions will remain for those who itemize. The rich often reduce their tax bills by making large charitable donations, so they will continue to benefit in this arena. Keep in mind, though, that you, too, can take advantage of this deduction by making charitable donations to your favorite causes.

Next: State and local tax deduction limit

8. You will be limited regarding state and local tax deductions

ANCHORAGE, AK - JULY 11: A truck passes a street sign named for the Bore Tide at Turnagain Arm on July 11, 2014 in Anchorage, Alaska. Alaska's most famous Bore Tide, occurs in a spot on the outside of Anchorage in the lower arm of the Cook Inlet, Turnagain Arm, where wave heights can reach 6-10 feet tall, move at 10-15 mph and the water temperature stays around 40 degrees Fahrenheit. This years Supermoon substantially increased the size of the normal wave and made it a destination for surfers.

The new tax rates could drive people to lower-taxed states like Alaska. | Streeter Lecka/Getty Images

Because the new bill will limit how much state and local tax money you can deduct before you pay your taxes, people who live in states with high local taxes will have to subject more of their income to federal income tax. One way to avoid this is to move. Some states with lower state and local taxes can increase the amount of your tax reduction, according to The New York Times. The states that have the lowest local taxes include Texas, New Hampshire, and parts of Alaska.

Next: Stock market changes

9. The stock market could go up

A lok at the stock market record on October 18, 2017

These tax breaks are extremely favorable to Wall Street. | Bryan R. Smith/AFP/Getty Images

Trump’s one-time repatriation tax encourages stateside companies that do overseas business to bring their profits back to the U.S. According to Business Insider, those companies can reinvest their profits here into core businesses, which would of course help grow the economy. They can also repurchase their shares and help boost the market. Sure, the rich will benefit from this — but if the stock market goes up, everyone wins.

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Read more: Here Is How the Deceptive Tax Reform Bill Cheated America

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