New Tax Plan Deductions

[Cortopassi]

To anyone who understands this better...

I have generally itemized deductions in the past years; with 2 kids my standard exemption is $16,000 and last year for example through various taxes, my itemized deduction was $19,483, so it benefited me to itemize.

1) With real estate and SALT taxes being limited to 10k, and the new married deduction going to $24k, it would seem assuming similar numbers that taking the standard deduction will be better for me, right?

2) I hear talk about prepaying next year's property taxes to take advantage of being able to still itemize this year. If I have the cash, any reason not to do that?

Thanks!

[moda0306]

To anyone who understands this better...

I have generally itemized deductions in the past years; with 2 kids my standard exemption is $16,000 and last year for example through various taxes, my itemized deduction was $19,483, so it benefited me to itemize.

1) With real estate and SALT taxes being limited to 10k, and the new married deduction going to $24k, it would seem assuming similar numbers that taking the standard deduction will be better for me, right?

2) I hear talk about prepaying next year's property taxes to take advantage of being able to still itemize this year. If I have the cash, any reason not to do that?

Thanks!

Taking the standard deduction would most likely be better for you under the new plan. But careful... your exemptions are going away. So you won't have that $16,100-ish in personal exemptions.

If I were you I'd prepay your property taxes and be sure you're fully paid in for state income taxes by 12/31.

[Maddy]

1) With real estate and SALT taxes being limited to 10k, and the new married deduction going to $24k, it would seem assuming similar numbers that taking the standard deduction will be better for me, right?

An article I ran across earlier this week (which I have no hope of finding now) asserted that while the standard deduction was being doubled, the personal exemption was being eliminated entirely. I haven't been able to verify this one way or another. If it's true, the principal feature being touted as beneficial to the middle and lower classes will be all but illusory.

EDIT: Moda appears to have understood the same thing. This is quite an underhanded move, wouldn't you say?

[Xan]

Moda,

For us, property tax bills are done by calendar year. The 2017 bill was sent in late October and is due January 31.

I'm certainly open to pre-paying but I'm not sure what the rules are. If I send them a bunch of extra money before the end of the year, would that be deductible off my federal taxes for this year? There must be some limit because I can't just pay 10 years' worth of property taxes all at once right now... Or can I?

[Maddy]

http://www.businessinsider.com/prepay-p ... es-2017-12
http://homeguides.sfgate.com/tax-advant ... 39177.html

And, if you can get past all the chatter about whether this topic is sufficiently political to be banned from view,
https://www.bogleheads.org/forum/viewtopic.php?t=233726

(Some things never change.)

[moda0306]

1) With real estate and SALT taxes being limited to 10k, and the new married deduction going to $24k, it would seem assuming similar numbers that taking the standard deduction will be better for me, right?

An article I ran across earlier this week (which I have no hope of finding now) asserted that while the standard deduction was being doubled, the personal exemption was being eliminated entirely. I haven't been able to verify this one way or another. If it's true, the principal feature being touted as beneficial to the middle and lower classes will be all but illusory.

EDIT: Moda appears to have understood the same thing. This is quite an underhanded move, wouldn't you say?

Maddy,

Don't get me started on this tax plan. It's garbage rearranging of the deck chairs on the Titanic for most Americans and a massive gift to corporations and the uber-wealthy.

I'd happily watch Paul Ryan hang for the very selective lies and ulterior motives he chooses to put into the world in the guise of "freedom." Well not really but it pisses me off to no end.

So yes. It's underhanded.

[ochotona]

My personal exemptions are $12,150 for my 2016 tax return. So they're increasing the standard deduction by $12,000? Well, that's a wash. But my ability to itemize things to my advantage is being suppressed by the higher standard deduction. I'd say that's a net loss for me. These politicians are scum.

Look, I think the best thing one can do is maximize Roth IRA and Roth 401(k) even if you're a high earner, and buy physical gold, because when the government flips and the other scumbags have control, taxes are going to have to go massively UP. And the Dollar will have to be debased further to pay this massive new debt. Thank you Speaker Ryan and others.

[Cortopassi]

Oh boy, I really don't understand where the savings are coming from. So I will go from $19,483 plus $16,200 taken off my taxable income ($35,683) to a standard $24 deduction because the $16,200 goes away. The situation below is reasonably near my case, 2 kids MFJ.

So what is actually causing the tax savings? The credits being made more available to higher incomes? A lower tax rate? It is obviously not because the top line deduction is getting bigger -- it is not!

Xan, fyi, for the past few weeks I have not been getting email notices of new posts in topics that I visit.

http://www.businessinsider.com/trump-ta ... pay-2017-9

[WiseOne]

I'm still trying to figure out what's in the final version of the tax bill. It looks to me like the new bill only increases the complexity and gamesmanship opportunities, which is hardly the original notion of tax reform.

Maddy you're correct that the personal exemptions have been eliminated, so that the new standard deduction is a loss for everyone except singles and married couples under 65/not blind/no kids, where it's not much of a change. This is why there was such a big fuss about the child tax credit. I am amazed that AARP hasn't gone bonkers over the loss of the over-65 extra exemption.

I have a feeling the high tax states are going to get a tax windfall out of all the confusion, because there are arcane points on their tax returns that depend on the Federal forms. For instance, New York State lets you deduct property taxes (but not state/local income taxes), but ONLY if you deducted them on the Federal return.

There are going to be opportunities for arbitrage in 2017-2018 also. I can't prepay property tax, but I should be able to prepay state income tax. Extra big deduction for 2017, and depending on how much confusion there is in the tax forms for 2018, I might or might not have to claim the state tax refund as income in 2018 (he he). In the worst case I'd have to claim it and would end up making 4% on the money (i.e. the drop in my top federal tax rate). I wonder how much I could legally prepay???

And then there's the pass through business deduction: 20% of income tax free if income < $250K - REALLY??? Who snuck that into the bill? That will be a lovely little bonus for the small amount of side income that I earn, but it'll be really significant for self-employed people. Let the mad scramble to convert wages to self-employment income begin. Anyone working for a small company should look into that asap, and frankly it will motivate people to switch jobs (e.g. quit working for a traditional taxi company and go drive for Uber).

[Xan]

It wasn't eliminated, but the income levels affected were moved WAY, way up I understand.

[WiseOne]

Thanks for the Bogleheads link. There was some discussion of prepaying estimated state taxes, and it appears there's a "gotcha" in the tax code about deductions being disallowed if they're not a reasonable estimate of taxes owed. I bet the IRS will be on the lookout for this sort of thing for 2017-2018, so best not to take the risk.

I overpaid my state taxes last year and didn't change my withholding for this year, so that will have to do. I'd definitely pay a property tax bill in 2017 rather than 2018 if I had that option.

[flyingpylon]

This might be helpful:

http://taxplancalculator.com/

[ochotona]

THEY ROYALLY SCREWED DIVORCED PEOPLE. Maybe because divorce isn't Christian. But sexually assaulting under-age teens is A-OK.

From Schwab:

Numerous other deductions and tax credits repealed: The bill repeals deductions for tax preparation, moving expenses and alimony payments, among others.

[ochotona]

This might be helpful:

http://taxplancalculator.com/

Why do we need a website? Wasn't it supposed to be calculable on a postcard?

[WiseOne]

It's simplified in some ways, by getting rid of a stack of deductions, but new tweak-worthy elements were introduced. I bet the tax forms & schedules won't change much. Don't see postcards in anyone's tax future.

So here's a question: does anyone think that the businesses that you buy most of your stuff from (groceries, hardware store etc) will realize savings from the new tax system, AND that they'll pass these savings down to us? As in, will this make a real difference in cost of living?

[farjean2]

It's simplified in some ways, by getting rid of a stack of deductions, but new tweak-worthy elements were introduced. I bet the tax forms & schedules won't change much. Don't see postcards in anyone's tax future.

So here's a question: does anyone think that the businesses that you buy most of your stuff from (groceries, hardware store etc) will realize savings from the new tax system, AND that they'll pass these savings down to us? As in, will this make a real difference in cost of living?

Likewise, do you think employers are going to start paying their employees more because of the corporate and small business tax cuts? Maybe it will eventually lead to higher wages if employers start offering higher wages to attract good people but I can't see any employer immediately sharing their windfall with their existing employees. I read somewhere that lots of companies are already sitting on a lot of cash and if they were disposed to doing that they could have already done it.

[Maddy]

Seems to me that the only "simplification" in store for most people is the elimination of the deductions that made it worthwhile to itemize. My guess is that most ordinary people will come to regret the loss of that complexity.

[Cortopassi]

This might be helpful:

http://taxplancalculator.com/

Thank you. I would save 2367 with the new plan. But only because of getting the child tax credit. My net taxable income is 12k higher in the new plan. So I don't know how that will roll into other calculations like FAFSA.

And I Thanks that it was supposed to make things simpler, but I'd say it just shifts things around.

I would also add that I do charitable contributions partly to take the tax incentive, and partly to be a good person. That is now less attractive, and I would worry for charitable organizations.

[Kbg]

No 2017 to 2018 arbitrage on Federal taxes...the bill explicitly bars deductions in 2018 for any 2017 state and local taxes.

For what it's worth, the US did need to get corporate taxes in line with the rest of the world to be competitive in terms of retaining large multi-nationals in the states. By definition the slack is going to get picked up by something/someones. It is evident the special interests' lobbying efforts continue to be worth funding however...nothing simplified about this new tax bill. I personally like simplified tax systems. I live in a very red state with a flat income tax and minimal deductions. My taxes take as long as it takes me (literally) to click the next buttons in TurboTax. I wish we would go VAT, flat or progressive with zero deductions/exemptions. The tax code as it exists today is all about giving out bennys and punishing whatever strikes the latest folks in power as a good thing. It's corrupting on many levels.

[ochotona]

A consumption tax... you'd have to handle tax-deferred money differently.

Imagine a regular IRA or 401k... not taxed initially... no tax until you consume. 1 tax event

Roth IRA or 401k... built with after tax money... taxed when you consume. 2 tax events

One additional layer of taxation for the Roth. You'd have to have an income tax for the regular IRA or 401k

[Libertarian666]

THEY ROYALLY SCREWED DIVORCED PEOPLE. Maybe because divorce isn't Christian. But sexually assaulting under-age teens is A-OK.

From Schwab:

Numerous other deductions and tax credits repealed: The bill repeals deductions for tax preparation, moving expenses and alimony payments, among others.

I'm not sure that actually screws divorced people to the extent you suggest, since the current rule is that the payer can deduct alimony but the recipient has to pay taxes on it. Perhaps the new law says that the payer can't deduct it but the recipient doesn't have to pay taxes on it. This is how child support works at present, I believe.

Yes, that seems to be what they are doing, at least according to this article: https://www.cnbc.com/2017/11/03/tax-ref ... ouses.html

[WiseOne]

A consumption tax... you'd have to handle tax-deferred money differently.

Imagine a regular IRA or 401k... not taxed initially... no tax until you consume. 1 tax event

Roth IRA or 401k... built with after tax money... taxed when you consume. 2 tax events

One additional layer of taxation for the Roth. You'd have to have an income tax for the regular IRA or 401k

This already happens, as many states have sales taxes. And don't forget the FICA taxes that applied on the front end in both cases.

It is true that implementing a consumption-based tax system would reduce the benefits of tax deferral, and would also be hard hitting for any kind of after-tax savings including a Roth. It may well be worthwhile to shift some of the income tax burden to consumption taxes, but you'd have to do it slowly and also find a way to make it work for people on the low end of the income scale. The FAIR tax idea of a tax credit that goes out to everybody (aka a citizen's dividend) is one way to accomplish that.

Maybe starting a transition by putting in place a national sales tax and citizen's dividend? This could be zero sum initially, or as it should provide immediate benefit to the low end of the income scale since they buy less stuff, could take over the role of some current welfare programs and their budget as well. Of course, we can't do this before fixing the broken immigration system, which ends up prioritizing people at the low end of the income scale i.e. exactly the opposite of what we should be doing.

[Xan]

THEY ROYALLY SCREWED DIVORCED PEOPLE. Maybe because divorce isn't Christian. But sexually assaulting under-age teens is A-OK.

From Schwab:

Numerous other deductions and tax credits repealed: The bill repeals deductions for tax preparation, moving expenses and alimony payments, among others.

I'm not sure that actually screws divorced people to the extent you suggest, since the current rule is that the payer can deduct alimony but the recipient has to pay taxes on it. Perhaps the new law says that the payer can't deduct it but the recipient doesn't have to pay taxes on it. This is how child support works at present, I believe.

Yes, that seems to be what they are doing, at least according to this article: https://www.cnbc.com/2017/11/03/tax-ref ... ouses.html

That could really upset the balance of things, if there isn't grandfathering for divorce agreements already in place.

[ochotona]

Michael Kitces says you can't backup and recharacterize Roth IRAs now.

[Libertarian666]

THEY ROYALLY SCREWED DIVORCED PEOPLE. Maybe because divorce isn't Christian. But sexually assaulting under-age teens is A-OK.

From Schwab:

Numerous other deductions and tax credits repealed: The bill repeals deductions for tax preparation, moving expenses and alimony payments, among others.

I'm not sure that actually screws divorced people to the extent you suggest, since the current rule is that the payer can deduct alimony but the recipient has to pay taxes on it. Perhaps the new law says that the payer can't deduct it but the recipient doesn't have to pay taxes on it. This is how child support works at present, I believe.

Yes, that seems to be what they are doing, at least according to this article: https://www.cnbc.com/2017/11/03/tax-ref ... ouses.html

That could really upset the balance of things, if there isn't grandfathering for divorce agreements already in place.

I think that was included.