Author Topic: Republican Tax Plan 2017  (Read 74063 times)

Glenstache

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Republican Tax Plan 2017
« on: November 02, 2017, 10:44:02 AM »
So... the GOP has released the first cut at the tax plan.
http://www.businessinsider.com/trump-gop-tax-reform-plan-bill-text-details-rate-2017-10

https://www.nytimes.com/2017/11/02/us/politics/tax-plan-republicans.html

How will this (as currently proposed as it will certainly change) impact your FIRE plans?

In FIRE, most of us will not have a high income, but changes to mortgage interest deductions, and deductions for medical expenses could be important both during FIRE and accumulations phases.

This list from the BI article above seems the most impacting elements:

Quote

Elimination of most personal itemized deductions and many credits. The only deduction preserved explicitly in the plan is for charitable gifts and and edited home-mortgage interest. Some of these include:
        Elimination of the student loan interest deduction: The amount paid toward student loan interest can currently be deducted.
        Elimination of the medical expense deduction: Under current law, individuals who spend over 10% of their income on medical expenses are allowed to deduct part of those costs from their taxes. The proposed new bill would remove that deduction.
        Elimination of the moving deduction: This allows anyone who moved to a new home in the past year to deduct moving expenses.
        Elimination of alimony payment deduction.
    Repeal of the alternative minimum tax (AMT): The tax, which forces people who qualify due to an outsized number of deductions, would be eliminated under the legislation. Incidentally, Trump's own tax bill has been shown to be millions of dollars more because of the tax.

NeonPegasus

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Re: Republican Tax Plan 2017
« Reply #1 on: November 02, 2017, 11:14:28 AM »
I am surprised by how okay I am with the details as presented thus far. Really, I expected much worse. My comments below in red.

- The tax rate changes I'm not super thrilled about. It used to be that joint filers making over $470k got put into the top bracket. Now that's been doubled. But maybe that's not the biggest deal since the current system starts single filers in that bracket at $418k and joint at $470k. I'm guessing two high earner families would simply have both filed single. Anyway, I would have liked to see another bracket at the top for super earners.
- GOP reached a deal that would allow people to deduct state and local property taxes up to $10,000 but not income or sales taxes. I know that will hurt in some high tax areas but it seems that states should bear the responsibility for their high taxes. Why should someone in a low tax state effectively be funding the deductions for someone in a high tax state?
Corporate tax cut will be immediate and permanent: The cut to 20% from the current 35% will is designed to be permanent. I wonder about this one.
Elimination of the estate tax: I disagree with this one. Sure, make it higher and index it to inflation but I think eliminating it will worsen inequality issues while adding to the deficit.
Repatriation tax rate: The repatriation rate on overseas assets for US companies would be as high as 12%. I wonder if this will backfire later.
No repeal of Obamacare's individual mandate: No argument here.
No changes to 401(k) plans: Hooray.
Increase in the size of the child tax credit. Yay but really, it won't make much difference for those who need it most.
Limiting home mortgage interest deduction: On new home purchases, interest on loans up to $500,000 would be deductible. Agreed.
A larger standard deduction. To avoid raising taxes on those currently in the 10% tax bracket, the standard deduction for all taxes would increase to $12,000 for individuals (up from $6,350) and $24,000 for married couples (up from $12,700). I'm in favor of simplifying our tax system and hopefully this would help.
A 25% rate for pass-through businesses. Instead of getting taxed at an individual rate for business profits, people who own their own business would pay at the so-called pass-through rate. There will be some guardrails on what kinds of businesses can claim this rate, to avoid individuals abusing the lower tax. Seems reasonable that legit small businesses shouldn't be taxed at a higher rate than corporations, though it looks like there will still be a difference.
Elimination of most personal itemized deductions and many credits. The only deduction preserved explicitly in the plan is for charitable gifts and and edited home-mortgage interest. Some of these include:
Elimination of the student loan interest deduction: Disagree. Education is a super important investment. But maybe the elimination would put pressure on colleges to make tuition more affordable?
Elimination of the medical expense deduction: Under current law, individuals who spend over 10% of their income on medical expenses are allowed to deduct part of those costs from their taxes. The proposed new bill would remove that deduction. Disagree.
Elimination of the moving deduction: Agree. Why did we have this in the first place?
Elimination of alimony payment deduction. Agree.
Repeal of the alternative minimum tax (AMT): Possibly disagree. I agree with the purpose of the AMT but I'm wondering if the changes to the deductions above make it less necessary.
Create a tax on large private university endowments: Private universities with assets of more than $100,000 per student will pay a 1.4% excise tax on their net investment income. Possibly disagree. This may really make it harder for private universities to offer good scholarships.
Repeal the Johnson Amendment: The current rule prevents tax-exempt nonprofits from making explicit election endorsements. Disagree.
Eliminate the ability to deduct interest on bonds for sports stadiums from federal taxes: Agree.

acroy

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Re: Republican Tax Plan 2017
« Reply #2 on: November 02, 2017, 11:26:53 AM »
Summary from Marketwatch how it will affect personal taxes https://www.marketwatch.com/story/heres-a-breakdown-of-how-the-new-house-tax-bill-impacts-your-taxes-2017-11-02

• There will be four tax rates: 12%, 25%, 35% and 39.6%. For single people, the brackets will be up to $45,000, up to $200,000, up to $500,000 and over $500,000, and for married people, those brackets will be up to $90,000, up to $260,000, up to $1 million and over $1 million.

The standard deduction would be hiked from $6,350 to $12,000 for individuals and $12,700 to $24,000 for married couples. But there will be no personal exemptions.

• The child tax credit will be hiked to $1,600 from $1,000 per child, and there will be a credit of $300 for each parent to help with expenses.

• The mortgage interest deduction will be preserved for existing mortgages but capped at $500,000 for newly purchased homes.

• State and local income taxes will not be able to be deducted, but state and local property taxes will be, up to $10,000.

• Despite intense debate, there doesn’t appear to be any change to 401(k) and Individual Retirement Accounts.

• The alternative minimum tax is repealed.

• The estate tax exemption will be doubled, and in six years, will be repealed.

• The deduction for interest on education loans and the deduction for qualified tuition and related expenses would be repealed.

Overall I'm a fan. Some simplification. Personally will score big with the child tax credit.
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Cheddar Stacker

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Re: Republican Tax Plan 2017
« Reply #3 on: November 02, 2017, 11:28:19 AM »
I make a nice living. A little into the six figure category, family of 4. Certainly not poor, likely top 10% of family income. Not necesarily middle class, likely upper middle class, but certainly not wealthy/rich/ultra high earner by most standards.

I just ran all the numbers for my scenario based on everything I read. Best case scenario, my taxes would go up by about $800. Taxable income will increase $19k but the lower rates keep the increase reasonable. It's still an increase. Most people who itemize will end up paying more due to the loss of exemptions.

It doesn't really impact my FIRE plans, but it sure pisses me off knowing I'm paying more for this proposed "middle class tax cut" while people much more well off than me will pay substantially less.
Indecision may or may not be my problem.

Inaya

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Re: Republican Tax Plan 2017
« Reply #4 on: November 02, 2017, 11:36:22 AM »
PTF
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CCCA

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Re: Republican Tax Plan 2017
« Reply #5 on: November 02, 2017, 11:42:32 AM »
has anyone seen info on capital gains rates?  I'm searching but not finding any info.  Wondering if they are keeping the low rates 15% and 0% for long-term gains.
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Slow2FIRE

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Re: Republican Tax Plan 2017
« Reply #6 on: November 02, 2017, 11:45:27 AM »
The brackets look very beneficial for single upper income (top 10%) filers and okay for married couples - big advantages don't come for married couples until they are in the top 3% of income earners.  Definitely great for married doctors/successful business owners/lawyers.

YearSingle 25%Single 28%Single 33%Single 35%MFJ 25%MFJ 28%MFJ 33%MFJ 35%
2017up to $91,900up to $191,650up to $416,700up to $418,400up to $153,100up to $233,350up to $416,700up to $470,700
2018up to $200,000NANAup to $500,000up to $260,000NANAup to $1,000,000

If this were to pass, it would be interesting to see if capital gains and qualified dividends taxation exclusions now extend up to the top of the 12% bracket (giving a single individual $57,000 of tax free investment income and a married couple $114,000 of tax free investment income.

Cheddar Stacker

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Re: Republican Tax Plan 2017
« Reply #7 on: November 02, 2017, 11:49:10 AM »
has anyone seen info on capital gains rates?  I'm searching but not finding any info.  Wondering if they are keeping the low rates 15% and 0% for long-term gains.

I think details on most everything are scarce. Still just a framework. I haven't seen anything about capital gains.
Indecision may or may not be my problem.

Slow2FIRE

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Re: Republican Tax Plan 2017
« Reply #8 on: November 02, 2017, 11:53:35 AM »
I like that renters are not subsidizing the wealthier homeowners mortgages as much with this plan (lower mortgage deduction cap, higher standard deduction).

Interesting that the Republican plan allows deductions of property taxes (which stronghold Republican states like TX and FL charge very high rates for property tax) but not state income taxes (which stronghold Democrat states like OR, CA and NY charge very high income tax rates).

Anyone know if they will index everything to inflation?  On the one hand choosing the measure of inflation is complex, but on the other hand things such as SS benefits are already using a measure of inflation to make adjustments.  Seems like brackets and deductions should be indexed to inflation and they could easily use the same measure that adjust SS benefits.

CCCA

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Re: Republican Tax Plan 2017
« Reply #9 on: November 02, 2017, 11:54:04 AM »
has anyone seen info on capital gains rates?  I'm searching but not finding any info.  Wondering if they are keeping the low rates 15% and 0% for long-term gains.

I think details on most everything are scarce. Still just a framework. I haven't seen anything about capital gains.


yeah, I figure it'll be more or less the same just because it plays to the GOP's wealthy base.  Maybe even a drop for the very top bracket. 
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BigRed

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Re: Republican Tax Plan 2017
« Reply #10 on: November 02, 2017, 11:55:42 AM »
I, too, am surprised at how well it ends up for us.  We're HCOL, northern NJ.  As renters, we will have slightly higher taxable income, due to the combined effect of increased standard deduction and elimination of personal and dependent exemptions.  But, the new brackets mean less tax, and the increase of the phase out point for the increased child tax credit is a huge win.  Overall, we'd see a $6k tax cut, by my calculations.

We are currently looking to buy, though.  The new tax plan exchanges the AMT for the cap on the Property Tax deduction, and end up with almost identical taxes either way for our price/tax range. 

So, the net effect is to make buying much less attractive, which lowers my expectation on house value appreciation, which makes buying even less attractive.  Maybe we continue to rent if this passes or buy only if the perfect option comes along.

That said, I don't need a tax cut.  And certainly not a deficit financed one so that services can be cut later.


v8rx7guy

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Re: Republican Tax Plan 2017
« Reply #11 on: November 02, 2017, 12:11:07 PM »
I think that it's a decent proposal.  I will benefit from the 12% tax rate, I'll benefit from the increase in the Child Tax Credit, and I'll no longer have to work through the schedule A.  I don't think it will make a massive difference for me, but I do think it will help a lot of people who really need the a break in taxes.
« Last Edit: November 02, 2017, 12:24:50 PM by v8rx7guy »

Cheddar Stacker

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Re: Republican Tax Plan 2017
« Reply #12 on: November 02, 2017, 12:12:51 PM »
The 429 page bill is attached if anyone else cares for more details.
Indecision may or may not be my problem.

JSMustachian

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Re: Republican Tax Plan 2017
« Reply #13 on: November 02, 2017, 12:18:41 PM »
I ran the numbers for my tax situation. Wife and I with all pretax retirement accounts maxed. The higher standard deduction, lower rate down to 12%, and keeping the pretax retirement plans are really helping my situation. I am looking at a $2500 savings.

I am interested in seeing if the child tax credit phases out for higher income earners since we have one on the way and exceed the income cap. Currently it phases out at $110,000. With the expanded child tax credit I could see my tax saving increase to over $4000.

Even with losing personal exemptions my taxes will go down from the lower rate and expanded child tax credit.
« Last Edit: November 02, 2017, 01:23:20 PM by JSMustachian »

Glenstache

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Re: Republican Tax Plan 2017
« Reply #14 on: November 02, 2017, 12:21:25 PM »
The 429 page bill is attached if anyone else cares for more details.

you can search the text in PDF for specific things you are interested in, such as "Capital gain" to find how they adjust that.

BigRed

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Re: Republican Tax Plan 2017
« Reply #15 on: November 02, 2017, 12:30:48 PM »
I am interested in seeing if the child tax credit phases out for higher income earners since we have one on the way and exceed the income cap. Currently it phases out at $110,000. With the expanded child tax credit I could see my tax saving increase to over $4000.

The Child Tax Credit Phase-Out starting point moves from $110k to $230k.

fi_minded

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Re: Republican Tax Plan 2017
« Reply #16 on: November 02, 2017, 12:31:17 PM »
Can anyone clarify the change on page 143 of the PDF above?

Quote
SEC. 1501. REPEAL OF SPECIAL RULE PERMITTING RE-CHARACTERIZATION OF ROTH IRA CONTRIBUTIONS AS TRADITIONAL IRA CONTRIBUTIONS.
18 (a) IN GENERAL.—Section 408A(d) is amended by
19 striking paragraph (6) and by redesignating paragraph
20 (7) as paragraph (6).

I believe you have to cross-reference it with the current tax code to make any sense of it: https://www.law.cornell.edu/uscode/text/26/408A

Paragraph (6) that is being struck out:

Quote
(6) Taxpayer may make adjustments before due date
(A) In general
Except as provided by the Secretary, if, on or before the due date for any taxable year, a taxpayer transfers in a trustee-to-trustee transfer any contribution to an individual retirement plan made during such taxable year from such plan to any other individual retirement plan, then, for purposes of this chapter, such contribution shall be treated as having been made to the transferee plan (and not the transferor plan).
(B) Special rules
(i) Transfer of earnings
Subparagraph (A) shall not apply to the transfer of any contribution unless such transfer is accompanied by any net income allocable to such contribution.
(ii) No deduction
Subparagraph (A) shall apply to the transfer of any contribution only to the extent no deduction was allowed with respect to the contribution to the transferor plan.

My real question is whether this affects a backdoor roth or a mega backdoor roth? I've never done either so I'm not quite clear if a Roth -> Traditional re-characterization is part of the process.

madamwitty

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Re: Republican Tax Plan 2017
« Reply #17 on: November 02, 2017, 12:34:18 PM »
So, does the property tax deduction apply on top of the $24,000 standard deduction (for MFJ) or only if it combines with some other kind of deduction (e.g. charitable donation) to exceed the standard deduction? Since it's limited to $10,000, it seems like it would apply to very few people if it has to "replace" the standard deduction.

sunnyca

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Re: Republican Tax Plan 2017
« Reply #18 on: November 02, 2017, 12:35:09 PM »
PTF

Bruinguy

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Re: Republican Tax Plan 2017
« Reply #19 on: November 02, 2017, 12:44:52 PM »
Can anyone clarify the change on page 143 of the PDF above?

Quote
SEC. 1501. REPEAL OF SPECIAL RULE PERMITTING RE-CHARACTERIZATION OF ROTH IRA CONTRIBUTIONS AS TRADITIONAL IRA CONTRIBUTIONS.
18 (a) IN GENERAL.—Section 408A(d) is amended by
19 striking paragraph (6) and by redesignating paragraph
20 (7) as paragraph (6).

I believe you have to cross-reference it with the current tax code to make any sense of it: https://www.law.cornell.edu/uscode/text/26/408A

Paragraph (6) that is being struck out:

Quote
(6) Taxpayer may make adjustments before due date
(A) In general
Except as provided by the Secretary, if, on or before the due date for any taxable year, a taxpayer transfers in a trustee-to-trustee transfer any contribution to an individual retirement plan made during such taxable year from such plan to any other individual retirement plan, then, for purposes of this chapter, such contribution shall be treated as having been made to the transferee plan (and not the transferor plan).
(B) Special rules
(i) Transfer of earnings
Subparagraph (A) shall not apply to the transfer of any contribution unless such transfer is accompanied by any net income allocable to such contribution.
(ii) No deduction
Subparagraph (A) shall apply to the transfer of any contribution only to the extent no deduction was allowed with respect to the contribution to the transferor plan.

My real question is whether this affects a backdoor roth or a mega backdoor roth? I've never done either so I'm not quite clear if a Roth -> Traditional re-characterization is part of the process.

If I understand it, if you make a non-deductible contribution your IRA in one year (say 2018) and you convert it to a Roth IRA before your deadline to file (April 2019), then this new section says that you treat it as if you only made the contribution to the Roth IRA and disregard the first step. 

Again, if I understand it correctly, it would mean that you would have to wait to convert, but that it would not prohibit it.  So, now you would have to make the non-deductible contribution in 2018, and then convert it sometime after April 2019.

v8rx7guy

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Re: Republican Tax Plan 2017
« Reply #20 on: November 02, 2017, 12:46:15 PM »
So, does the property tax deduction apply on top of the $24,000 standard deduction (for MFJ) or only if it combines with some other kind of deduction (e.g. charitable donation) to exceed the standard deduction? Since it's limited to $10,000, it seems like it would apply to very few people if it has to "replace" the standard deduction.

Good question.  My original interpretation was that it would be like before where all of the combined items on the Schedule A could be used in lieu of the Standard deduction.  But what would be left on the Schedule A now... not a whole lot, that's for sure.  If it were a separate line item in ADDITION to the standard deduction, that would be a great change for me!

Cheddar Stacker

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Re: Republican Tax Plan 2017
« Reply #21 on: November 02, 2017, 12:59:52 PM »
So, does the property tax deduction apply on top of the $24,000 standard deduction (for MFJ) or only if it combines with some other kind of deduction (e.g. charitable donation) to exceed the standard deduction? Since it's limited to $10,000, it seems like it would apply to very few people if it has to "replace" the standard deduction.

Good question.  My original interpretation was that it would be like before where all of the combined items on the Schedule A could be used in lieu of the Standard deduction.  But what would be left on the Schedule A now... not a whole lot, that's for sure.  If it were a separate line item in ADDITION to the standard deduction, that would be a great change for me!

It's not on top of the $24k.

Itemized deductions will apply to very few people now. $10k real estate tax plus maybe $25k mortgage interest on a $500k mortgage. Plus charitable contributions and little else. It will be hard for most people to exceed the $24k standard deduction now.
Indecision may or may not be my problem.

BFGirl

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Re: Republican Tax Plan 2017
« Reply #22 on: November 02, 2017, 01:07:25 PM »
So, does the property tax deduction apply on top of the $24,000 standard deduction (for MFJ) or only if it combines with some other kind of deduction (e.g. charitable donation) to exceed the standard deduction? Since it's limited to $10,000, it seems like it would apply to very few people if it has to "replace" the standard deduction.

I believe you would have to itemize to get the property tax deduction, so your itemized deductions would have to exceed the standard deduction

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Re: Republican Tax Plan 2017
« Reply #23 on: November 02, 2017, 01:09:40 PM »
Other notes from my first glance at the first 150 pages:

1- Page 127/128 discusses HSAs and makes me think that deduction may be going away, confusing read though.

2- Definition of personal residence moved from 2 years to 5 years living in the house. Tax on sale of residence will be more common as a result.

3- Dependent care benefits may be going away, again it's a confusing read though.

4- DPAD is going away. Domestic Production Activities Deduction. This will directly affect very few, restricted to business owners who qualify, but it could indirectly affect thousands of American jobs as it removes incentives for manufacturing jobs in the United States. Not surprising given the current powers that be, but it isn't being highlighted by anyone and it is going to really screw the middle class.
Indecision may or may not be my problem.

BFGirl

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Re: Republican Tax Plan 2017
« Reply #24 on: November 02, 2017, 01:10:03 PM »
Although, I have not run the numbers, I think this would be worse for me.  I lose the personal exemptions for me and my college children, plus I no longer get the head of household standard deduction, but have to use the individual.  Even if I can itemize, I think I will come out owing more as I am still essentially in the same tax bracket as before.

BigRed

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Re: Republican Tax Plan 2017
« Reply #25 on: November 02, 2017, 01:19:19 PM »
Other notes from my first glance at the first 150 pages:

1- Page 127/128 discusses HSAs and makes me think that deduction may be going away, confusing read though.

2- Definition of personal residence moved from 2 years to 5 years living in the house. Tax on sale of residence will be more common as a result.

3- Dependent care benefits may be going away, again it's a confusing read though.


I can't imagine HSAs going anywhere, that's a huge GOP healthcare 'solution.'

Is that the Dependent Care Tax Credit or the DCFSA, or both? 

index

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Re: Republican Tax Plan 2017
« Reply #26 on: November 02, 2017, 01:19:28 PM »
I think some people may be celebrating the move of the standard deduction from 12.7k to 24k but forgetting the personal exemption of 4k has been removed. This means your effective deduction using the standard deduction for a couple on the old plan was 12.7k + 4k + 4k = 20.7k. If your itemized deductions last year were greater than 16k, you are going to be taxed on more of your income.

The big detriment is to those with kids. Say you had two kids, if you took the standard deduction you were able to deduct (12.7k +4k x 4 persons) 28.7k from your income without itemizing. Now it is 24k. In addition the provision to use a (5k) child care flexible spending account is off the table. 

talltexan

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Re: Republican Tax Plan 2017
« Reply #27 on: November 02, 2017, 01:19:47 PM »
ptf

djadziadax

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Re: Republican Tax Plan 2017
« Reply #28 on: November 02, 2017, 01:23:11 PM »
Although, I have not run the numbers, I think this would be worse for me.  I lose the personal exemptions for me and my college children, plus I no longer get the head of household standard deduction, but have to use the individual.  Even if I can itemize, I think I will come out owing more as I am still essentially in the same tax bracket as before.

Not true - Head of Household is retained, deduction is 18,300. I file as HOH, live in NYC, and my itemized deductions were about 18K. So it is a wash for me which is great considering my SALT taxes as so freaking high!

djadziadax

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Re: Republican Tax Plan 2017
« Reply #29 on: November 02, 2017, 01:26:58 PM »
I think some people may be celebrating the move of the standard deduction from 12.7k to 24k but forgetting the personal exemption of 4k has been removed. This means your effective deduction using the standard deduction for a couple on the old plan was 12.7k + 4k + 4k = 20.7k. If your itemized deductions last year were greater than 16k, you are going to be taxed on more of your income.

The big detriment is to those with kids. Say you had two kids, if you took the standard deduction you were able to deduct (12.7k +4k x 4 persons) 28.7k from your income without itemizing. Now it is 24k. In addition the provision to use a (5k) child care flexible spending account is off the table.

Thant what I thought, but, you get a child CREDIT of $1600 for each child, so in your scenario, you will pay $1200 less tax for the two kids.

JSMustachian

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Re: Republican Tax Plan 2017
« Reply #30 on: November 02, 2017, 01:29:40 PM »
I think some people may be celebrating the move of the standard deduction from 12.7k to 24k but forgetting the personal exemption of 4k has been removed. This means your effective deduction using the standard deduction for a couple on the old plan was 12.7k + 4k + 4k = 20.7k. If your itemized deductions last year were greater than 16k, you are going to be taxed on more of your income.

The big detriment is to those with kids. Say you had two kids, if you took the standard deduction you were able to deduct (12.7k +4k x 4 persons) 28.7k from your income without itemizing. Now it is 24k. In addition the provision to use a (5k) child care flexible spending account is off the table.

I thought this myself but after running the numbers for my situation that was not the case. I still came out with a lower tax bill. I ran hypothetical numbers once our first is born and a second in the future. The expanded child credit makes up for losing those exemptions at least in my situation.

BFGirl

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Re: Republican Tax Plan 2017
« Reply #31 on: November 02, 2017, 01:31:14 PM »
Although, I have not run the numbers, I think this would be worse for me.  I lose the personal exemptions for me and my college children, plus I no longer get the head of household standard deduction, but have to use the individual.  Even if I can itemize, I think I will come out owing more as I am still essentially in the same tax bracket as before.

Actually, reading through the bill, I think they may be keeping head of household, it just doesn't seem like any of the news stories are mentioning it.  Anyone else read the bill this way?

‘‘(c) STANDARD DEDUCTION.—For purposes of this subtitle—
‘‘(1) IN GENERAL.—Except as otherwise provided in this subsection, the term ‘standard deduction’ means—
  ‘‘(A) $24,400, in the case of a joint return (or a surviving spouse (as defined in section 2(a)),
  ‘‘(B) three-quarters of the amount in effect  under subparagraph (A) for the taxable year, in the case of an unmarried individual with at least one qualifying child (within the meaning of section 7706), and
  ‘‘(C) one-half of the amount in effect under subparagraph (A) for the taxable year, in any other case.

I'm a lawyer and this makes my head hurt...

BFGirl

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Re: Republican Tax Plan 2017
« Reply #32 on: November 02, 2017, 01:32:09 PM »
Although, I have not run the numbers, I think this would be worse for me.  I lose the personal exemptions for me and my college children, plus I no longer get the head of household standard deduction, but have to use the individual.  Even if I can itemize, I think I will come out owing more as I am still essentially in the same tax bracket as before.

Not true - Head of Household is retained, deduction is 18,300. I file as HOH, live in NYC, and my itemized deductions were about 18K. So it is a wash for me which is great considering my SALT taxes as so freaking high!

Thanks, I was reading the actual bill and that was what I thought after reading it.

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Re: Republican Tax Plan 2017
« Reply #33 on: November 02, 2017, 01:33:29 PM »
So honest question, is this version actually "simplified" compared to the current tax code? That was ostensibly the (stated) goal of tax reform in the first place.
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Re: Republican Tax Plan 2017
« Reply #34 on: November 02, 2017, 01:36:21 PM »
Hand-waved the numbers and it'll save me a few hundred bucks a year.  Not enough to make me feel too strongly about it on a personal level.

But as for my thoughts on some of the details:

Fewer tax brackets makes the tax code "seem" simpler on the surface, but it doesn't really mean that much on its own.  Fine.  Less overall, saving the most for people at $200k+/yr.  As expected.
Corporate tax cut going from 35% to 20% seems like a drastic change that will sure mean something, but I don't know enough to have a real opinion.  Maybe lower margin businesses will pop up?
Eliminating the estate tax is just dumb.  Less dynastic wealth would be better, not more.
The "repatriation tax rate" sounds like a good idea, but I don't know enough of the nuance to say whether it'll have unintended consequences or be easily dodged in some way.
Increase child tax credit: sure.
Limit mortgage-deduction to 500k loans: sure - I'm generally opposed to this deduction anyway, and limiting this plus the larger standard deduction means it'll do less.
Larger standard deduction: this means a bit less monkey business with deductions so fine.
Pass-through rate for small businesses: sounds good, don't know the details of how that works.
Eliminating student loan interest deduction sounds really bad, but in reality it probably won't mean a ton with the increased standard deduction.  My guess is this will be the least popular part of the whole thing that will be reversed the easiest.
Tax on private university endowments? No, that's dumb.  Education is already too expensive.

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Re: Republican Tax Plan 2017
« Reply #35 on: November 02, 2017, 01:39:58 PM »
So honest question, is this version actually "simplified" compared to the current tax code? That was ostensibly the (stated) goal of tax reform in the first place.

Yes, a lot of the itemized deductions are going away, and that's what makes it so complicated in the first place. They could have gone farther, but it is simpler.

The number of tax brackets I don't think make any difference for "simplicity". If there are no deductions at all then you can have 100 brackets and it's still perfectly simple. "What's your income? How many people in your household? Okay, you owe X in taxes, refund check's in the mail!"

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Re: Republican Tax Plan 2017
« Reply #36 on: November 02, 2017, 01:41:02 PM »
Based on a quick calculation, our taxes (MFJ) would have been about $2000 higher in 2016 if these rates and other provisions had been in force. If this passes, I may move to a system of consolidating charitable deductions for two years into one year, and then alternating between itemizing and claiming the standard deduction.

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Re: Republican Tax Plan 2017
« Reply #37 on: November 02, 2017, 01:41:54 PM »
I had about $24 in itemized last year and $16k in personal.

I will pay about $2k more in taxes loosing the $16k in personal but get back $1200 in expanded child tax credit so overall about $800 more in taxes.

Interesting digging on the home sale exemption. The 2 to 5 years will add taxes to a lot of FIRE live in flippers with high incomes.

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Re: Republican Tax Plan 2017
« Reply #38 on: November 02, 2017, 01:45:20 PM »
Deductions have always come off at your marginal rate, right? I'm just confused, because a story on CNBC attempting to explain the winners and losers says that MFJ will pay 12% at incomes between 24k and 90k, which makes it sound like the opposite. Under the current rules, if the MFJ 12% bracket were set at 90k, then your real rates would be 0% on the first 24k, and 12% on every dollar earned from 24k to 114k (90+24). I'm guessing some writer/editor was just being too flippant about this, and I haven't read any of the actual bill, but wondering if anyone else noticed this, as it would be a rather large change.

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Re: Republican Tax Plan 2017
« Reply #39 on: November 02, 2017, 01:46:30 PM »
Hand-waved the numbers and it'll save me a few hundred bucks a year.  Not enough to make me feel too strongly about it on a personal level.

But as for my thoughts on some of the details:

Fewer tax brackets makes the tax code "seem" simpler on the surface, but it doesn't really mean that much on its own.  Fine.  Less overall, saving the most for people at $200k+/yr.  As expected. Maybe not so - households with around 200K income usually rely heavily on mortgage and SALT deductions. With those gone, they will have to pay more. Seems fair. I know a number of people in this situation employed in finance, who buy 1.5MM apt, or pay 6K for rent, and can do that because they don't pay a lot of tax.
Corporate tax cut going from 35% to 20% seems like a drastic change that will sure mean something, but I don't know enough to have a real opinion.  Maybe lower margin businesses will pop up?
Eliminating the estate tax is just dumb.  Less dynastic wealth would be better, not more. I guess then, you will live it up in retirement and not leave nothing from your stash to your kids! True mustachian
The "repatriation tax rate" sounds like a good idea, but I don't know enough of the nuance to say whether it'll have unintended consequences or be easily dodged in some way.
Increase child tax credit: sure.
Limit mortgage-deduction to 500k loans: sure - I'm generally opposed to this deduction anyway, and limiting this plus the larger standard deduction means it'll do less. This is the best! This really benefits folks that dont need it.
Larger standard deduction: this means a bit less monkey business with deductions so fine.
Pass-through rate for small businesses: sounds good, don't know the details of how that works.
Eliminating student loan interest deduction sounds really bad, but in reality it probably won't mean a ton with the increased standard deduction.  My guess is this will be the least popular part of the whole thing that will be reversed the easiest.
Tax on private university endowments? No, that's dumb.  Education is already too expensive. Well, I think Harvard can spare 1.5% of its profits on the 20B in endowment they have. They have room for that.

MMMarbleheader

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Re: Republican Tax Plan 2017
« Reply #40 on: November 02, 2017, 01:47:44 PM »
Deductions have always come off at your marginal rate, right? I'm just confused, because a story on CNBC attempting to explain the winners and losers says that MFJ will pay 12% at incomes between 24k and 90k, which makes it sound like the opposite. Under the current rules, if the MFJ 12% bracket were set at 90k, then your real rates would be 0% on the first 24k, and 12% on every dollar earned from 24k to 114k (90+24). I'm guessing some writer/editor was just being too flippant about this, and I haven't read any of the actual bill, but wondering if anyone else noticed this, as it would be a rather large change.

Yes and for most of us Mustachians who max out our 401k its 12% up to $132k.

effigy98

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Re: Republican Tax Plan 2017
« Reply #41 on: November 02, 2017, 01:50:20 PM »
  • I like that they are capping or removing completely deductions in all areas and raising the standard deduction. We should not incentivize getting into massive debt for your college degree or mcmansion. There are many ways to go to college cheap or avoid college and get alternative educations. I think this may cause a little downward pressure on college tuitions which they need. I also do not like how most Americans see their house as a piggy bank because "hey, the mortgage interest is deductible... FREE MONEY!". I rather see it eliminated but lowering it is a good start. I also hate the argument that spending 10k interest just to save 3k on your taxes is a “good deal”.
  • I like the lowering tax for offshore money. In my industry most companies have a massive amount of money offshore that could be put to good R&D use back home.
  • Very happy they did not touch the retirement accounts as we take great advantage of these vehicles and max them out.
  • I think the lower tax rate will help the economy. I like how they are punishing high tax states which may reign in the waste.
  • Removing the estate tax is very evil and keeps power even more consolidated within families. In fact, I think this tax should substaintially increase, something like 75% over 500k
« Last Edit: November 02, 2017, 01:54:43 PM by effigy98 »

djadziadax

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Re: Republican Tax Plan 2017
« Reply #42 on: November 02, 2017, 01:52:39 PM »
Deductions have always come off at your marginal rate, right? I'm just confused, because a story on CNBC attempting to explain the winners and losers says that MFJ will pay 12% at incomes between 24k and 90k, which makes it sound like the opposite. Under the current rules, if the MFJ 12% bracket were set at 90k, then your real rates would be 0% on the first 24k, and 12% on every dollar earned from 24k to 114k (90+24). I'm guessing some writer/editor was just being too flippant about this, and I haven't read any of the actual bill, but wondering if anyone else noticed this, as it would be a rather large change.

Yes and for most of us Mustachians who max out our 401k its 12% up to $132k.

Calculation please? Seems to me - 90K + 36K (18x2 for 401K contributions) + 24K standard deduction - $150K of income will keep you in the 12% rate.

v8rx7guy

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Re: Republican Tax Plan 2017
« Reply #43 on: November 02, 2017, 01:53:56 PM »
So honest question, is this version actually "simplified" compared to the current tax code? That was ostensibly the (stated) goal of tax reform in the first place.

I'd say so.

djadziadax

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Re: Republican Tax Plan 2017
« Reply #44 on: November 02, 2017, 01:55:31 PM »
  • I like that they are capping or removing completely deductions in all areas and raising the standard deduction. We should not incentivize getting into massive debt for your college degree or mcmansion. There are many ways to go to college cheap or avoid college and get alternative educations. I think this may cause a little downward pressure on college tuitions which they need. I also do not like how most Americans see their house as a piggy bank because "hey, the mortgage interest is deductible... FREE MONEY!". I rather see it eliminated but lowering it is a good start. I also hate the argument that spending 10k interest just to save 3k on your taxes is a “good deal”.

So agree with that! Come to New York to see the excesses in the real estate area only because you can use the SALT and mortgage deductions. It is truly crazy.
  • I like the lowering tax for offshore money. In my industry most companies have a massive amount of money offshore that could be put to good R&D use back home.
  • Very happy they did not touch the retirement accounts as we take great advantage of these vehicles and max them out.
  • I think the lower tax rate will help the economy. I like how they are punishing high tax states which may reign in the waste.

MMMarbleheader

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Re: Republican Tax Plan 2017
« Reply #45 on: November 02, 2017, 01:56:30 PM »
Deductions have always come off at your marginal rate, right? I'm just confused, because a story on CNBC attempting to explain the winners and losers says that MFJ will pay 12% at incomes between 24k and 90k, which makes it sound like the opposite. Under the current rules, if the MFJ 12% bracket were set at 90k, then your real rates would be 0% on the first 24k, and 12% on every dollar earned from 24k to 114k (90+24). I'm guessing some writer/editor was just being too flippant about this, and I haven't read any of the actual bill, but wondering if anyone else noticed this, as it would be a rather large change.

Yes and for most of us Mustachians who max out our 401k its 12% up to $132k.

Calculation please? Seems to me - 90K + 36K (18x2 for 401K contributions) + 24K standard deduction - $150K of income will keep you in the 12% rate.

My wife doesn't work.. I forgot the glory of the double maxed out 401k. Carry on.

djadziadax

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Re: Republican Tax Plan 2017
« Reply #46 on: November 02, 2017, 02:01:28 PM »
Deductions have always come off at your marginal rate, right? I'm just confused, because a story on CNBC attempting to explain the winners and losers says that MFJ will pay 12% at incomes between 24k and 90k, which makes it sound like the opposite. Under the current rules, if the MFJ 12% bracket were set at 90k, then your real rates would be 0% on the first 24k, and 12% on every dollar earned from 24k to 114k (90+24). I'm guessing some writer/editor was just being too flippant about this, and I haven't read any of the actual bill, but wondering if anyone else noticed this, as it would be a rather large change.

Yes and for most of us Mustachians who max out our 401k its 12% up to $132k.

Calculation please? Seems to me - 90K + 36K (18x2 for 401K contributions) + 24K standard deduction - $150K of income will keep you in the 12% rate.

My wife doesn't work.. I forgot the glory of the double maxed out 401k. Carry on.

Ahh, yes, of course - makes sense to have both single 401K contribution and dual.

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Re: Republican Tax Plan 2017
« Reply #47 on: November 02, 2017, 02:02:24 PM »
Deductions have always come off at your marginal rate, right? I'm just confused, because a story on CNBC attempting to explain the winners and losers says that MFJ will pay 12% at incomes between 24k and 90k, which makes it sound like the opposite. Under the current rules, if the MFJ 12% bracket were set at 90k, then your real rates would be 0% on the first 24k, and 12% on every dollar earned from 24k to 114k (90+24). I'm guessing some writer/editor was just being too flippant about this, and I haven't read any of the actual bill, but wondering if anyone else noticed this, as it would be a rather large change.


the 90 is the upper limit on taxable income for the 2nd tax bracket (12%), not 90k in income over the 24k upper limit on the 1st bracket.


So if you make 90K, you'll be taxed at 12% on the 66k that fits into that 2nd bracket.
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PathtoFIRE

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Re: Republican Tax Plan 2017
« Reply #48 on: November 02, 2017, 02:05:03 PM »
We are a relatively high dual income family, and my quick calculator math says we would save 4k this year compared to the current regime, although I don't understand the child credits (the current AND the proposed new) so maybe it would be a little less or more. But that's almost entirely due to us living in Texas and getting the grandfathered mortgage deduction, without those we would be paying about 3k more than last year.

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Re: Republican Tax Plan 2017
« Reply #49 on: November 02, 2017, 02:05:36 PM »
Other notes from my first glance at the first 150 pages:

1- Page 127/128 discusses HSAs and makes me think that deduction may be going away, confusing read though.

2- Definition of personal residence moved from 2 years to 5 years living in the house. Tax on sale of residence will be more common as a result.

3- Dependent care benefits may be going away, again it's a confusing read though.


I can't imagine HSAs going anywhere, that's a huge GOP healthcare 'solution.'

Is that the Dependent Care Tax Credit or the DCFSA, or both?
According to the summary here: https://waysandmeansforms.house.gov/uploadedfiles/tax_cuts_and_jobs_act_section_by_section_hr1.pdf

That part of the bill makes Archer MSAs non-deductible.  This is to push more money into HSAs.