This week IWF will be running a series featuring profiles of different American women and how they will be affected by the latest tax reform legislation. Special thanks to analysts at The Tax Foundation, who provided the calculations for each profile.
Today, meet Ashley. Ashley is a single mom and owns her own business. This year her successful business will make $60,000. Ashley is very thankful for her mom, who cares for her one son, Jackson, when she is working many long hours, even on nights and weekends, as a small business owner.
Without the tax reform law, Ashley takes $8,330 in personal exemptions and a standard Head-of-Household deduction of $9,550. This leaves her with a taxable income of $42,150. At her income level, she would pay $5,642.50 in federal income taxes, except that she qualifies for a $1000 child tax credit, which brings her final bill to $4,642.50.
Under the new tax law, Ashley will benefit in a few different ways. First, although personal exemptions are eliminated, Ashley’s standard deduction will increase to $18,000, nearly twice as much as before.
Secondly – and of critical importance to small business owners like her – Ashley can now also deduct up to 20 percent of her income because her business is a pass-through entity, meaning her business income “passes through” to her as an individual. This means she deducts another $8,400 (or 20 percent of the $42,000 left after her standard deduction). This means Ashley has a total taxable income of $33,600. At her rate, this income would result in $3,760 in taxes before the child tax credit.
Thirdly, Ashley also benefits from the doubling of the child tax credit from $1000 to $2000. This leaves her with a final tax liability of $1760. This means Ashley gets a tax cut of $2,882.50. For a hard-working single mom, this money will make a big difference. That’s money she can reinvest in her business, spend on her family, or save for the future. That’s a good deal for Ashley and a good deal for women like her.