Author Topic: Republican Tax Plan 2017  (Read 163042 times)

SaucyAussie

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Re: Republican Tax Plan 2017
« Reply #1350 on: December 16, 2017, 07:56:42 AM »
$6000 in Child Tax Credits ( I have 3 kids) x 7 years (2018 through sunset 2025) = $42000 in Federal Taxes I don't have to pay.

This will accelerate my FIRE saving by $500/month.

This is ridiculously terrible policy. Who cares how many children I have? Why should the Federal Government incentive baby making? Why is the cut-off to qualify for Child Credits so high? Does someone making >500K (not me) per year really need an extra 6 K in Federal Tax Credits?

All this is is smoke and mirrors to pacify (mollify) the middle class and upper middle class so voters will "go along to get along". This will be followed by a Cliff in 2025 that will be blamed on the Democrats.

JGS

This is not really a change in policy, but more just a change in the mechanics of the law.  Remember, the $4000 dependent exemption was repealed, so to offset this, the child credit was increased by $1000.  So a theoretical average taxpayer in the 25% bracket could come out even, losing the exemption (4000 x.25) but gaining it back in the form of the child credit.

Of course, depending on your specific situation, you may come out better or worse under the new law.  For example, the higher phase out is huge bonus to middle-upper income earners who received no credit before, but now receive the full 2000/child.

radram

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Re: Republican Tax Plan 2017
« Reply #1351 on: December 16, 2017, 08:06:21 AM »
http://taxplancalculator.com/

Nice work by this guy to get his tax calculator updated already.  A few tweaks during the week made it a little better for most, especially regarding the child tax credit and another shift in the brackets.

That is nice. Thanks.

For a family with three kids making $100k in Ohio, they come out maybe $2k ahead. $75k/1.5k. $50k/$1.3k. A lot of folks around here are going to like that.

Yes, it's temporary. They get shafted once the kids turn 17 and/or the new provisions sunset in 2025. Still, it's not looking like the average Trumper around here will see this as a negative.

For a couple married filing jointly with no kids it doesn't work out so well. $100k income saves $871, $75k saves $322, $50k loses $260. That $50k cohort probably includes a bunch of Trumpers.

Anyone know if kids over 16 will count as dependents? We lose the exemption for them, currently allowed up to age 24 if they're full time at school.

Someone please correct me if I am wrong.

With no personal exemptions anymore, there is no longer any advantage to claim them as dependents. Anyone see anything in this new bill to prevent all families to claim 0 children, hire them to do jobs around the house, and then have them all file their own tax return, regardless of age? Wouldn't they each get a $12,000 deduction. Seems doing this would then allow a family of 4 to have $48,000 of income tax free. Even if you would lose the child tax credit (that will just go away anyway), wouldn't the family be better off?

brooklynguy

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Re: Republican Tax Plan 2017
« Reply #1352 on: December 16, 2017, 08:18:48 AM »
Anyone know if the first in first out (FIFO) rule was put in?  Hope not.

On page 375 of the conference report, it says this was not included in the bill.

sherr

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Re: Republican Tax Plan 2017
« Reply #1353 on: December 16, 2017, 08:19:31 AM »
Someone please correct me if I am wrong.

With no personal exemptions anymore, there is no longer any advantage to claim them as dependents. Anyone see anything in this new bill to prevent all families to claim 0 children, hire them to do jobs around the house, and then have them all file their own tax return, regardless of age? Wouldn't they each get a $12,000 deduction. Seems doing this would then allow a family of 4 to have $48,000 of income tax free. Even if you would lose the child tax credit (that will just go away anyway), wouldn't the family be better off?

Assuming that you are actually paying them for work and it's actually their money afterwards then yes you're probably right, you'd be giving up the Child Tax Credit though. Just claiming it on your taxes without it actually being true would be criminal tax evasion. The IRS might be interested in what a 2-year-old could do to command a $12,000 salary.

https://quickbooks.intuit.com/r/hr-laws-and-regulation/the-tax-implications-of-hiring-your-children/

Quote
The tax benefits for hiring your kids can be substantial, which means there’s lots of potential for abuse. There’s nothing wrong with employing your kids, but you may face additional scrutiny from the IRS if you do. Attorney Stephen Fishman recommends that you maintain payroll documentation and records to prove that your children are bona fide employees. Be realistic about your their skills and compensation as well. The IRS isn’t likely to believe that a 14-year-old is doing your accounting, and it will keep an eye out for an unreasonably high pay rate.

That's not really that different from today's state of affairs, except that there's slightly less incentive to claim them as dependents if the exemptions go away.

maizeman

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Re: Republican Tax Plan 2017
« Reply #1354 on: December 16, 2017, 08:20:32 AM »
First problem: Generally you cannot deduct the cost of hiring folks to do yardwork or clean the house from your own income.
Second problem: If the kid is earning $12,000 in self employment income and claiming it on a tax return, they'd owe an awful lot in self employment tax (15.3%)

sol

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Re: Republican Tax Plan 2017
« Reply #1355 on: December 16, 2017, 08:46:35 AM »
Is literally any agency or organization on the face of the planet estimating how much it will cost assuming that the Republicans are lying about the phase-outs?

Um, literarlly every agency?

You seem confused on this point.  Every single analysis of the bill conducted by a government agency has to, by law, assume that the bill will be implemented as written.  They cannot offer any analysis of hypothetical changes to the bill in the future, only of what it actually says in its current form.

Then there are some think tanks that offer analysis based on their wish lists or fears.  Those have generally said the bill costs 2-3 trillion over the long term, due to increased interest on the newly created debt.

sherr

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Re: Republican Tax Plan 2017
« Reply #1356 on: December 16, 2017, 09:03:16 AM »
Is literally any agency or organization on the face of the planet estimating how much it will cost assuming that the Republicans are lying about the phase-outs?

Um, literarlly every agency?

You seem confused on this point.  Every single analysis of the bill conducted by a government agency has to, by law, assume that the bill will be implemented as written.  They cannot offer any analysis of hypothetical changes to the bill in the future, only of what it actually says in its current form.

Then there are some think tanks that offer analysis based on their wish lists or fears.  Those have generally said the bill costs 2-3 trillion over the long term, due to increased interest on the newly created debt.

That was in fact my point. No one is estimating based on theoretical changes that might happen in the future.

tralfamadorian

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Re: Republican Tax Plan 2017
« Reply #1357 on: December 16, 2017, 09:16:34 AM »
Is there anything in the final version that changes the contribution limits, deductibility or funding deadlines for 401k, IRA or HSA?

Thanks.

fyi

http://docs.house.gov/billsthisweek/20171218/CRPT-115HRPT-466.pdf

There are some tweaks to retirement accounts but I don't see anything specific to your question.  You can take a look at the referenced PDF, starting at page 636.

One thing that looks like made it in to the final bill - 401k loans will not become due within 60 days of termination of employment, instead you would have until the due date of filing your tax return.  So if employment terminates on Jan 1, 2018, you would have until April 15, 2019 to repay the loan.  This seems like common sense.

Changes that I can identify so far:

1) Roth recharacterizations will no longer be allowed but other recharacterizations will. (pg. 639)
2) Loan repayment changes as stated by SaucyAussie. (pg. 645)

sol

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Re: Republican Tax Plan 2017
« Reply #1358 on: December 16, 2017, 09:22:13 AM »
That was in fact my point. No one is estimating based on theoretical changes that might happen in the future.

Perhaps I misunderstood.  Do you think republicans are lying when they say the bill will only add 1.5 trillion in new debt, or do you thimk they are lying when they say the middle class tax cuts will be made permanent?

Because if one of those things is true, then the other one isn't.  I've been assuming that they wrote the bill they wanted to see implemented, to screw the middle class but add less debt.  Some other folks seem to think they want a different bill, one that is nicer to the middle class but screws the national debt.

In either case, corporations and the super wealthy are making out great, so that's clearly their first property with this bill.  Then way lower down is the debate about who we should screw over to make that happen.  Should it be today's middle class, or tomorrow's future taxpayers (who may also be the middle class)?
« Last Edit: December 16, 2017, 09:25:28 AM by sol »

BuildingFrugalHabits

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Re: Republican Tax Plan 2017
« Reply #1359 on: December 16, 2017, 09:28:22 AM »
The fact that this will balloon the debt and saddle future generations is obviously bad news.  Another primary concern I have is what is this expected to do to charities that depend on tax deductible donations.  Raising the deduction while eliminating the personal exemption is basically a wash but it also has the side effect of reducing the tax advantages of charitable giving by reducing the number of people who itemize. 

sol

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Re: Republican Tax Plan 2017
« Reply #1360 on: December 16, 2017, 09:57:13 AM »
Another primary concern I have is what is this expected to do to charities that depend on tax deductible donations. 

This problem has been widely discussed online, (for example, here), with the general consensus being that it could accelerate end-of-year giving right now, at the expense of ongoing gifts in the future.  You're right, it effectively ends the tax deduction for most people's charitable giving.  Most people don't donate the required tens of thousands of dollars per year you'd need to see any tax benefit, but this is just another way the bill favors the wealthy.  If you're rich enough to have a private foundation, the rule changes don't hurt you.

It looks like lots of the tax changes in this bill are covert attempts to support larger GOP policy goals.  For example, the changes to pass through income will incentivize more people to become contractors instead of employees, which reduces the payroll taxes paid in to support social security and medicare, thus further undermining the financial viability of programs that Republicans have long claimed are insolvent because they are philosophically opposed to the idea of the social safety net. 

There are a handful of other secondary impacts like that, that have not yet been widely discussed but which all seem to align nicely with long-term Republican goals about supporting wealthy capitalists at the expense of the working class.

sherr

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Re: Republican Tax Plan 2017
« Reply #1361 on: December 16, 2017, 09:59:04 AM »
That was in fact my point. No one is estimating based on theoretical changes that might happen in the future.

Perhaps I misunderstood.  Do you think republicans are lying when they say the bill will only add 1.5 trillion in new debt, or do you thimk they are lying when they say the middle class tax cuts will be made permanent?

Because if one of those things is true, then the other one isn't.  I've been assuming that they wrote the bill they wanted to see implemented, to screw the middle class but add less debt.  Some other folks seem to think they want a different bill, one that is nicer to the middle class but screws the national debt.

In either case, corporations and the super wealthy are making out great, so that's clearly their first property with this bill.  Then way lower down is the debate about who we should screw over to make that happen.  Should it be today's middle class, or tomorrow's future taxpayers (who may also be the middle class)?

Yes, I think we're vigorously agreeing with each other. Either you have to take the bill at face value and assume the middle-class phase-outs are intentional and desired, or you have to assume that the intention is to make them permanent eventually and that they're only "temporary" now so that they can lie about the true cost of the bill.

sol

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Re: Republican Tax Plan 2017
« Reply #1362 on: December 16, 2017, 10:06:35 AM »
Yes, I think we're vigorously agreeing with each other.

High fives all around. 


teen persuasion

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Re: Republican Tax Plan 2017
« Reply #1363 on: December 16, 2017, 10:14:17 AM »
$6000 in Child Tax Credits ( I have 3 kids) x 7 years (2018 through sunset 2025) = $42000 in Federal Taxes I don't have to pay.

This will accelerate my FIRE saving by $500/month.

This is ridiculously terrible policy. Who cares how many children I have? Why should the Federal Government incentive baby making? Why is the cut-off to qualify for Child Credits so high? Does someone making >500K (not me) per year really need an extra 6 K in Federal Tax Credits?

All this is is smoke and mirrors to pacify (mollify) the middle class and upper middle class so voters will "go along to get along". This will be followed by a Cliff in 2025 that will be blamed on the Democrats.

JGS

This is not really a change in policy, but more just a change in the mechanics of the law.  Remember, the $4000 dependent exemption was repealed, so to offset this, the child credit was increased by $1000.  So a theoretical average taxpayer in the 25% bracket could come out even, losing the exemption (4000 x.25) but gaining it back in the form of the child credit.

Of course, depending on your specific situation, you may come out better or worse under the new law.  For example, the higher phase out is huge bonus to middle-upper income earners who received no credit before, but now receive the full 2000/child.

Actually, it appears that the personal exemption is only suspended, until many things revert to the current scenario again in 2026.  That actually surprised me, I thought it was one of the permanent changes.

So much for simplifying things, if we all have to learn a new set of rules and brackets and rates, only to return to the current set of rules, etc., in a few years.  Reading parts of the document, I was struck by the issue of withholding calculation.  It's all based on # of exemptions, but they are essentially = 0 now.

BTDretire

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Re: Republican Tax Plan 2017
« Reply #1364 on: December 16, 2017, 10:33:29 AM »
First problem: Generally you cannot deduct the cost of hiring folks to do yardwork or clean the house from your own income.
Second problem: If the kid is earning $12,000 in self employment income and claiming it on a tax return, they'd owe an awful lot in self employment tax (15.3%)

 Yep, get em used to paying those taxes early.

 Where was all the liberal screaming when Obama added $9 trillion to the debt?

JustGettingStarted1980

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Re: Republican Tax Plan 2017
« Reply #1365 on: December 16, 2017, 11:14:33 AM »
$6000 in Child Tax Credits ( I have 3 kids) x 7 years (2018 through sunset 2025) = $42000 in Federal Taxes I don't have to pay.

This will accelerate my FIRE saving by $500/month.

This is ridiculously terrible policy. Who cares how many children I have? Why should the Federal Government incentive baby making? Why is the cut-off to qualify for Child Credits so high? Does someone making >500K (not me) per year really need an extra 6 K in Federal Tax Credits?

All this is is smoke and mirrors to pacify (mollify) the middle class and upper middle class so voters will "go along to get along". This will be followed by a Cliff in 2025 that will be blamed on the Democrats.

JGS

This is not really a change in policy, but more just a change in the mechanics of the law.  Remember, the $4000 dependent exemption was repealed, so to offset this, the child credit was increased by $1000.  So a theoretical average taxpayer in the 25% bracket could come out even, losing the exemption (4000 x.25) but gaining it back in the form of the child credit.

Of course, depending on your specific situation, you may come out better or worse under the new law.  For example, the higher phase out is huge bonus to middle-upper income earners who received no credit before, but now receive the full 2000/child.

Yep. The tax bill eliminated the child tax credit phase out while also doubling the credit itself.  People in the 150K to 500K income brackets in low to medium COL locations say “thank you very much.”

JustGettingStarted1980

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Re: Republican Tax Plan 2017
« Reply #1366 on: December 16, 2017, 11:28:18 AM »
First problem: Generally you cannot deduct the cost of hiring folks to do yardwork or clean the house from your own income.
Second problem: If the kid is earning $12,000 in self employment income and claiming it on a tax return, they'd owe an awful lot in self employment tax (15.3%)

 Yep, get em used to paying those taxes early.

 Where was all the liberal screaming when Obama added $9 trillion to the debt?

 
Here we go again! Could someone smarter than me calculate how much of that $9 trillion can be attributed to unpaid for tax cuts, unfunded wars, and the meltdown of the economy that occurred during George Bush’s administration? Do we really need to have this argument again?

SaucyAussie

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Re: Republican Tax Plan 2017
« Reply #1367 on: December 16, 2017, 11:36:10 AM »
Nahhh, the middle and lower classes are probably protected until we have a sovereign credit crisis.  When the sunset provisions come up, it will be just like the bush tax cuts.  There will be tremendous pressure to make them permanent.  Maybe the upper bracket tax cuts will be allowed to expire.  Maybe the corporate tax rate will be rolled back (although that actually being good policy maybe not).  Maybe some more "guard rails" will be put on the ridiculous breaks for partnerships and S-Corps.  But we're not going to openly cut entitlements or openly raise taxes on the middle class unless and until it's a crisis.  Maybe some tinkering by doing something like chained CPI, maybe do some more "hidden" taxes as mandates.  But otherwise, the only thing the american electorate is united on is that they wants lots of government that somebody else pays for.

Fine but that means that the actual cost of the bill is going to be much much larger than the $1 - 1.5 Trillion advertised. Which is a requirement based on the budget they passed.

So either we assume that the tax bill represents the Republican's actual desire / plan and that sol's criticism is valid and it's pretty much just a temporary bandaid for the middle-class so they can ram through a huge permanent upper-class cut, or we assume that they really are looking out for the both but are lying in bad faith about how devastating to the federal budget (and probably therefore the entitlement programs) this plan will be. I'm honestly not sure which paints them in a worse light.

Edited to talk about "upper-class cuts" instead of "corporate cuts", since that's what sol was referring to.

Is it really lying when when everybody knows (except sol apparently) that that's exactly why they are doing it?  And they freely admit that?

I don't know, you tell me. Are they lying about how much the bill will cost? How much will it cost then? Is there any way to estimate it? Is literally any agency or organization on the face of the planet estimating how much it will cost assuming that the Republicans are lying about the phase-outs?

They're politicians - if they're mouths are moving they are lying.  Remember "no new taxes"?  Or "you can keep your doctor"?  Politicians lying is not a new thing.  But this faux outrage at the other guys, when they try to do the same things as our guys, is frankly a little exhausting.

SaucyAussie

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Re: Republican Tax Plan 2017
« Reply #1368 on: December 16, 2017, 11:41:59 AM »
First problem: Generally you cannot deduct the cost of hiring folks to do yardwork or clean the house from your own income.
Second problem: If the kid is earning $12,000 in self employment income and claiming it on a tax return, they'd owe an awful lot in self employment tax (15.3%)

 Yep, get em used to paying those taxes early.

 Where was all the liberal screaming when Obama added $9 trillion to the debt?

 
Here we go again! Could someone smarter than me calculate how much of that $9 trillion can be attributed to unpaid for tax cuts, unfunded wars, and the meltdown of the economy that occurred during George Bush’s administration? Do we really need to have this argument again?

Here's an article that tries to do exactly that.
https://www.thebalance.com/national-debt-under-obama-3306293

To add some perspective, we are currently at around $20 trillion in debt.  Under current law, that is projected to grow to $30 trillion over the next ten years.  The tax bill adds around $1.5 trillion to that, putting us at around $31.5 trillion.  Doesn't it seem silly to hyperventilate over the 1.5, but not concerned about the other $30 trillion?

sol

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Re: Republican Tax Plan 2017
« Reply #1369 on: December 16, 2017, 12:07:25 PM »
The tax bill adds around $1.5 trillion to that, putting us at around $31.5 trillion.  Doesn't it seem silly to hyperventilate over the 1.5, but not concerned about the other $30 trillion?

As I've mentioned several times in this thread, that analysis does not account for the interest to be paid on that new debt.

And republicans have styled themselves as the party of fiscal restraint for decades now.  Does it seem odd they are now gleefully adding to the debt?
« Last Edit: December 16, 2017, 02:47:30 PM by sol »

TomTX

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Re: Republican Tax Plan 2017
« Reply #1370 on: December 16, 2017, 12:21:27 PM »
First problem: Generally you cannot deduct the cost of hiring folks to do yardwork or clean the house from your own income.
Second problem: If the kid is earning $12,000 in self employment income and claiming it on a tax return, they'd owe an awful lot in self employment tax (15.3%)

 Yep, get em used to paying those taxes early.

 Where was all the liberal screaming when Obama added $9 trillion to the debt?

 
Here we go again! Could someone smarter than me calculate how much of that $9 trillion can be attributed to unpaid for tax cuts, unfunded wars, and the meltdown of the economy that occurred during George Bush’s administration? Do we really need to have this argument again?

About $12 trillion, presuming we include all the lifetime veteran medical costs.

radram

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Re: Republican Tax Plan 2017
« Reply #1371 on: December 16, 2017, 12:24:08 PM »
First problem: Generally you cannot deduct the cost of hiring folks to do yardwork or clean the house from your own income.
Second problem: If the kid is earning $12,000 in self employment income and claiming it on a tax return, they'd owe an awful lot in self employment tax (15.3%)

What about a rental property. Granted a 2 year old might seem a little extreme, but what about:

1. Gift a rental property to your 10-12 year old or older child.
2. File form 709 so the gift is excluded from taxes ( the value will count toward the lifetime gift exclusion about to double in the new tax plan ($22 million for MFJ)
3. The 10-12 year old now actively participates in the running of the business, including the accounting, hiring handyman, painting, etc.
4. No FiCA taxes on rental income.
5. First 12,000 of income is tax free for that child.
6. YOUR income has dropped by the value it was increased to your child
7. Depreciation (I believe taking it is still MANDATORY) will further decrease annual income for 25 years or so for the child.
8. Rinse and repeat until the full 12,000 is utilized.

Could buying a REIT achieve the same result without doing the actual management?

Disadvantage is you no longer control the property. That could be mitigated in several ways, including taking away the child's cell phone for a week (remember, they are 12 :)

This would be a strategy for excess, not funds you need during your life. It is based on the idea of treating all monies in the family as sort of a pseudo "radram Inc.", where the strategy is to maximize revenues while minimizing expenses. Under those terms, it makes little difference if the home is mine, my wife's, my child's, etc. We are all in this together.

I really think this Form 709 thing is way under-reported, especially when they were talking about the full repeal of the estate tax.
Thoughts?

sherr

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Re: Republican Tax Plan 2017
« Reply #1372 on: December 16, 2017, 01:27:41 PM »
They're politicians - if they're mouths are moving they are lying.  Remember "no new taxes"?  Or "you can keep your doctor"?  Politicians lying is not a new thing.  But this faux outrage at the other guys, when they try to do the same things as our guys, is frankly a little exhausting.

So we've moved from "it's not lying" to "both parties are the same." Got it.

To add some perspective, we are currently at around $20 trillion in debt.  Under current law, that is projected to grow to $30 trillion over the next ten years.  The tax bill adds around $1.5 trillion to that, putting us at around $31.5 trillion.  Doesn't it seem silly to hyperventilate over the 1.5, but not concerned about the other $30 trillion?

And putting that in better perspective, that's an increase of 15% in how fast it's growing. But we both know it's actually going to be more then that, since everyone is right and they're not going to let the middle-class phase-outs actually happen. So let's spitball 20-25%.

Who said I'm not concerned about the $30 Trillion? Deficit spending to get out of an economic depression (worst since the Great one) is how Keynesian economics is supposed to work. Cutting government income and worsening deficit spending during a time of relative prosperity doesn't make any kind of sense. Except it does, because it's a clear attempt to drive the government into a crisis in the next downturn and fulfill all their "government doesn't work so let's destroy it" fantasies. It's dirty slimy politics, it will do lasting damage to this country's poor and middle class, and there's no reason for any of it. And no I don't think there's any "faux outrage" or "silly hyperventilating" going on here. I will be fine, as will probably most people here. But I am justifiably angry that we have a party that's intentionally trying to run our country into the ground just so their ultra-rich donors can get a good ROI on their campaign contributions and the politicians can say "remember when I gave you free money" in the midterms next year.

Sure, give us tax simplification and reform, but not unfunded cuts. Bring back "I will close the Carried Interest loophole" Trump. Let fiscally responsible politicians work together in good faith to make the country better, even if they sometimes disagree on what direction that should be. But not this nonsense.

FIREchiefsr

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Re: Republican Tax Plan 2017
« Reply #1373 on: December 16, 2017, 01:31:15 PM »
Changes that I can identify so far:

1) Roth recharacterizations will no longer be allowed but other recharacterizations will. (pg. 639)
2) Loan repayment changes as stated by SaucyAussie. (pg. 645)

Thanks so much for finding and posting this part about the Roth recharacterizations:
Quote
The conference agreement follows the House bill and the Senate amendment with a
modification. Under the provision, the special rule that allows a contribution to one type of IRA
to be recharacterized as a contribution to the other type of IRA does not apply to a conversion
contribution
to a Roth IRA. Thus, recharacterization cannot be used to unwind a Roth
conversion.
However, recharacterization is still permitted with respect to other contributions.
For example, an individual may make a contribution for a year to a Roth IRA and, before the due
date for the individual’s income tax return for that year, recharacterize it as a contribution to a
traditional IRA.277

Neither of the original bills were at all clear on this.  The meaningful new terminology appears to be their introduction of the term "conversion contribution."  Apparently, Roth conversions/recharacterizations will now be officially dead.

(I hate the change.  Recharacterizations were great insurance against market drops.  My life will be easier, but less lucrative in down years.)

FIREchiefsr

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Re: Republican Tax Plan 2017
« Reply #1374 on: December 16, 2017, 01:35:32 PM »
Anyone know if the first in first out (FIFO) rule was put in?  Hope not.

On page 375 of the conference report, it says this was not included in the bill.

Excellent.  Finally a clear reference to this being gone.  Thanks.


Kevin

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Re: Republican Tax Plan 2017
« Reply #1375 on: December 16, 2017, 02:43:54 PM »
Also FUCK the GOP, in particular fuck section 1402 of the proposed tax code. How does changing the tax free sale of a house after 2 years to 5 years help the middle class? News flash, it doesn't. I am one of those middle class families who purchased a house that needed a lot of TLC. My wife and I slow flipped the house while living in it and are now getting ready to sell. Unfortunately, if this goes into law, we will either have to wait 3 more years or sell and pay taxes on the ~$50k in profits we are forecast to make. That would be around $8k in taxes, all so we can fund the 0.01% and repeal the estate tax.

Fuck that and fuck the GOP.

Quote
SEC. 1402. EXCLUSION OF GAIN FROM SALE OF A PRINCIPAL RESIDENCE.
(a) Requirement That Residence Be Principal Residence For 5 Years During 8-Year Period.—Subsection (a) of section 121 is amended—
(1) by striking “5-year period” and inserting “8-year period”, and
(2) by striking “2 years” and inserting “5 years”.

https://www.congress.gov/bill/115th-congress/house-bill/1/text#toc-H7A8ADDE279B541D890C20C759B82ABD3

Woohoo! They dropped this nasty party of the bill! Page 109.



Still hate the GOP but that saved me $10k next year.

http://www.wsj.com/public/resources/documents/JointExplanatoryStatement121517.pdf

teen persuasion

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Re: Republican Tax Plan 2017
« Reply #1376 on: December 16, 2017, 05:03:02 PM »
First problem: Generally you cannot deduct the cost of hiring folks to do yardwork or clean the house from your own income.
Second problem: If the kid is earning $12,000 in self employment income and claiming it on a tax return, they'd owe an awful lot in self employment tax (15.3%)

What about a rental property. Granted a 2 year old might seem a little extreme, but what about:

1. Gift a rental property to your 10-12 year old or older child.
2. File form 709 so the gift is excluded from taxes ( the value will count toward the lifetime gift exclusion about to double in the new tax plan ($22 million for MFJ)
3. The 10-12 year old now actively participates in the running of the business, including the accounting, hiring handyman, painting, etc.
4. No FiCA taxes on rental income.
5. First 12,000 of income is tax free for that child.
6. YOUR income has dropped by the value it was increased to your child
7. Depreciation (I believe taking it is still MANDATORY) will further decrease annual income for 25 years or so for the child.
8. Rinse and repeat until the full 12,000 is utilized.

Could buying a REIT achieve the same result without doing the actual management?

Disadvantage is you no longer control the property. That could be mitigated in several ways, including taking away the child's cell phone for a week (remember, they are 12 :)

This would be a strategy for excess, not funds you need during your life. It is based on the idea of treating all monies in the family as sort of a pseudo "radram Inc.", where the strategy is to maximize revenues while minimizing expenses. Under those terms, it makes little difference if the home is mine, my wife's, my child's, etc. We are all in this together.

I really think this Form 709 thing is way under-reported, especially when they were talking about the full repeal of the estate tax.
Thoughts?
There's always creating a YouTube star: https://www.washingtonpost.com/news/morning-mix/wp/2017/12/11/6-year-old-made-11-million-in-one-year-reviewing-toys-on-you-tube/?utm_term=.3b32efc7e27a

maizeman

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Re: Republican Tax Plan 2017
« Reply #1377 on: December 16, 2017, 05:20:49 PM »
First problem: Generally you cannot deduct the cost of hiring folks to do yardwork or clean the house from your own income.
Second problem: If the kid is earning $12,000 in self employment income and claiming it on a tax return, they'd owe an awful lot in self employment tax (15.3%)

What about a rental property. Granted a 2 year old might seem a little extreme, but what about:

1. Gift a rental property to your 10-12 year old or older child.
2. File form 709 so the gift is excluded from taxes ( the value will count toward the lifetime gift exclusion about to double in the new tax plan ($22 million for MFJ)
3. The 10-12 year old now actively participates in the running of the business, including the accounting, hiring handyman, painting, etc.
4. No FiCA taxes on rental income.
5. First 12,000 of income is tax free for that child.
6. YOUR income has dropped by the value it was increased to your child
7. Depreciation (I believe taking it is still MANDATORY) will further decrease annual income for 25 years or so for the child.
8. Rinse and repeat until the full 12,000 is utilized.

Could buying a REIT achieve the same result without doing the actual management?

Disadvantage is you no longer control the property. That could be mitigated in several ways, including taking away the child's cell phone for a week (remember, they are 12 :)

This would be a strategy for excess, not funds you need during your life. It is based on the idea of treating all monies in the family as sort of a pseudo "radram Inc.", where the strategy is to maximize revenues while minimizing expenses. Under those terms, it makes little difference if the home is mine, my wife's, my child's, etc. We are all in this together.

I really think this Form 709 thing is way under-reported, especially when they were talking about the full repeal of the estate tax.
Thoughts?

Taxes are certainly not my area of expertise. Would passive real estate income be considered unearned income and be subject to the so-called kiddie tax? https://www.irs.gov/taxtopics/tc553

Also, are you envisioning doing this with leveraged properties or ones paid off in full? In the first case you'd probably run into issues with the bank not wanting to qualify a 12 year old for a mortgage and the IRS not considering the 12 year old to own the home independently if you're listed on the mortgage docs. In the second case this would require tying up an awful lot of capital to save perhaps $3-4,000 in taxes. And then when your kid grows up and moves away you're out the cost of a house. Now, as you say, if you already have more money than you need for a lifetime, then you can look at the transfer of a house's worth of capital to your teenage child as a feature rather than a bug, but I cannot help but think that by this point in the scenario we'd be letting the tail of taxes wag the dog of estate planning.

AdrianC

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Re: Republican Tax Plan 2017
« Reply #1378 on: December 16, 2017, 07:49:07 PM »
It looks like lots of the tax changes in this bill are covert attempts to support larger GOP policy goals.  For example, the changes to pass through income will incentivize more people to become contractors instead of employees, which reduces the payroll taxes paid in to support social security and medicare, thus further undermining the financial viability of programs that Republicans have long claimed are insolvent because they are philosophically opposed to the idea of the social safety net. 

Would it reduce payroll taxes? As a self employed person I pay plenty in payroll taxes - self employment tax covers the employee and employer share.

sol

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Re: Republican Tax Plan 2017
« Reply #1379 on: December 16, 2017, 09:22:50 PM »
Would it reduce payroll taxes? As a self employed person I pay plenty in payroll taxes - self employment tax covers the employee and employer share.

It reduces payroll taxes if you retain business income as profit, instead of wages you pay yourself.

ZiziPB

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Re: Republican Tax Plan 2017
« Reply #1380 on: December 17, 2017, 04:57:01 AM »
Would it reduce payroll taxes? As a self employed person I pay plenty in payroll taxes - self employment tax covers the employee and employer share.

It reduces payroll taxes if you retain business income as profit, instead of wages you pay yourself.

Sol, while I agree with you completely on your take on this bill, I think we need to stop prognosticating disasters that will happen because of this bill and instead start thinking about ways to live with the consequences.  I'm really disappointed that this thread disintegrated into a purely political discussion. 

How about we have a productive discussion about how to live with this bill and how to elect people who will have the will to fix it?


Mr Mark

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Re: Republican Tax Plan 2017
« Reply #1381 on: December 17, 2017, 05:35:42 AM »


How about we have a productive discussion about how to live with this bill and how to elect people who will have the will to fix it?

Yeah, I thought some of the back and forth in this thread a bit silly given that we all quite like the 0% capital gains/qualified dividend provisions of the previous and new tax code, accessible by not having a big MAGI/W2 income and instead having lots of passive investments.

I've always thought it a bit cheeky decrying the tax breaks for billionaires while ignoring the huge loophole we Mustachians exploit in the USA, enabling us humble millionaires to pull up to $90k/yr in income without paying a dime in income tax. I think a LOT of hard working middle class people paying large amounts of state and federal income tax would find that disgraceful...

So let's accept the new tax code as it is, and see about legally making it work for us. Looks like we retain the 0% cap gain/QD break, and get a max 20% on real estate income while retaining full deductibility of mortgage interest and property tax, plus slightly faster depreciation. RE seems to do very well with this tax code (coincidentally?).

brooklynguy

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Re: Republican Tax Plan 2017
« Reply #1382 on: December 17, 2017, 05:54:40 AM »
I've always thought it a bit cheeky decrying the tax breaks for billionaires while ignoring the huge loophole we Mustachians exploit in the USA, enabling us humble millionaires to pull up to $90k/yr in income without paying a dime in income tax. I think a LOT of hard working middle class people paying large amounts of state and federal income tax would find that disgraceful...

It is disgraceful.  It’s what allows Warren Buffett (together with we mustachian millionaires) to pay a lower tax rate than his secretary, which is shockingly unfair.  And, like Warren Buffett, some of us in this forum complain about that inherent unfairness, loudly and often, and vote against our own personal financial self-interest to try to eliminate it, at the same time that we plan to continue to exploit it for as long as it does remain the law of the land.

dmc

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Re: Republican Tax Plan 2017
« Reply #1383 on: December 17, 2017, 06:01:12 AM »
If Buffet wanted the government to have more of his money why is he shielding his estate tax by giving the bulk to the Gates Foundation. 

He could always give more.

SaucyAussie

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Re: Republican Tax Plan 2017
« Reply #1384 on: December 17, 2017, 06:06:13 AM »
They're politicians - if they're mouths are moving they are lying.  Remember "no new taxes"?  Or "you can keep your doctor"?  Politicians lying is not a new thing.  But this faux outrage at the other guys, when they try to do the same things as our guys, is frankly a little exhausting.

So we've moved from "it's not lying" to "both parties are the same." Got it.



I get the feeling we are in agreement on this but you just have a hard time admitting it.

SaucyAussie

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Re: Republican Tax Plan 2017
« Reply #1385 on: December 17, 2017, 06:08:42 AM »

To add some perspective, we are currently at around $20 trillion in debt.  Under current law, that is projected to grow to $30 trillion over the next ten years.  The tax bill adds around $1.5 trillion to that, putting us at around $31.5 trillion.  Doesn't it seem silly to hyperventilate over the 1.5, but not concerned about the other $30 trillion?

And putting that in better perspective, that's an increase of 15% in how fast it's growing. But we both know it's actually going to be more then that, since everyone is right and they're not going to let the middle-class phase-outs actually happen. So let's spitball 20-25%.


I'm just pushing out the raw numbers, I'll let you and others spin it with your partisan nonsense.

frugalecon

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Re: Republican Tax Plan 2017
« Reply #1386 on: December 17, 2017, 07:20:08 AM »
Others may have already commented on this, but if not, I will point out that it appears that the standard deductions are indexed for inflation, using the same chained-CPI measure that will be used to index the brackets themselves, but the SALT $10,000 exemption (and the $750,000 mortgage limit) appear not to be indexed. Over time that should shift more and more people into the standard deduction. At present, I would potentially find it optimal to itemize every other year, if I bunched deductible charitable deductions, but that will cease being an effective strategy as my mortgage interest shrinks. It will be very interesting to see how much of a response there is in high-priced real estate markets (like the one I live in) and for charitable contributions.

I know that there are partisans of maintaining mortgages at current rates, but this will effectively increase my cost of mortgage interest by 50%, since I will move from a scenario where it is a deduction against taxes at a roughly 34% marginal rate to a scenario where it is not deductible at all. Suddenly a 3.125% after tax fixed rate on a roughly 7 year term fixed income investment doesn't look so bad.

TomTX

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Re: Republican Tax Plan 2017
« Reply #1387 on: December 17, 2017, 07:39:02 AM »
If Buffet wanted the government to have more of his money why is he shielding his estate tax by giving the bulk to the Gates Foundation. 

He could always give more.

Because having <1% of the super wealthy do that solves absolutely nothing.  It's a structural change needed.

TomTX

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Re: Republican Tax Plan 2017
« Reply #1388 on: December 17, 2017, 07:40:23 AM »
Others may have already commented on this, but if not, I will point out that it appears that the standard deductions are indexed for inflation, using the same chained-CPI measure that will be used to index the brackets themselves, but the SALT $10,000 exemption (and the $750,000 mortgage limit) appear not to be indexed. Over time that should shift more and more people into the standard deduction. At present, I would potentially find it optimal to itemize every other year, if I bunched deductible charitable deductions, but that will cease being an effective strategy as my mortgage interest shrinks. It will be very interesting to see how much of a response there is in high-priced real estate markets (like the one I live in) and for charitable contributions.

Pretty sure the new tax code said you can no longer prepay your 2018 property tax for a deduction in 2017.

adman_C

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Re: Republican Tax Plan 2017
« Reply #1389 on: December 17, 2017, 08:33:53 AM »

Pretty sure the new tax code said you can no longer prepay your 2018 property tax for a deduction in 2017.
It seems property tax prepayment may be ok, even if income tax prepayment is not. See: https://www.bogleheads.org/forum/viewtopic.php?p=3666834#p3666834

tralfamadorian

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Re: Republican Tax Plan 2017
« Reply #1390 on: December 17, 2017, 08:51:00 AM »
Thanks so much for finding and posting this part about the Roth recharacterizations:

NP! I spent a bit a time looking at it to make sure (as best I could be) that it did not affect backdoor Roths or the Roth conversion ladder, the latter of which would have been pretty devastating to the FIRE community.

sherr

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Re: Republican Tax Plan 2017
« Reply #1391 on: December 17, 2017, 08:57:43 AM »

To add some perspective, we are currently at around $20 trillion in debt.  Under current law, that is projected to grow to $30 trillion over the next ten years.  The tax bill adds around $1.5 trillion to that, putting us at around $31.5 trillion.  Doesn't it seem silly to hyperventilate over the 1.5, but not concerned about the other $30 trillion?

And putting that in better perspective, that's an increase of 15% in how fast it's growing. But we both know it's actually going to be more then that, since everyone is right and they're not going to let the middle-class phase-outs actually happen. So let's spitball 20-25%.


I'm just pushing out the raw numbers, I'll let you and others spin it with your partisan nonsense.

So in your world comparing "total debt accumulated so far" with "estimated increase in debt over 10 years" and concluding that it's no big deal "just the raw numbers", but pointing out that the "percentage increase in annual deficit" is actually pretty large is "nonsense partisan spin". How odd. However clearly everyone is tired of hearing from me, so I'll shut up now.

FenderBender

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Re: Republican Tax Plan 2017
« Reply #1392 on: December 17, 2017, 09:03:32 AM »
So let's accept the new tax code as it is, and see about legally making it work for us.


I agree, but not just working the tax code to one's advantage, need to protect one's self from the rigged system.

I'm really not that old, but I've seen the debt go from hundreds of millions to billions then trillions which worried me over the years, but honestly it doesn't bother me at all now.  The national debt was just one of many concerns over the years, there's consumer debt, pension fund under funding, bond debt and student debt from coast to coast which to me is Puerto Rico in the making, but I have learned not to care as it will never be resolved.  Being a fiscal conservative, I've long worried about the next generation, but while worrying I witnessed both parties spending on their usual pet projects to stay in power.

I've seen Democrats come to power promising to spend more over the years while ignoring the debt.  I've seen Republicans come to power promising not to spend more, but they too ponied up every time.  It's a battle of sorts, while Democrats are in power, typical Republican pet projects aren't funded so when Republicans gain power, there's an effort to fund what hasn't been funded for a certain number of years, then the Democrats do the same when they get power so an endless cycle of each party aching to fund their pet projects.

I find all involved when speaking about the debt, including Mustache millionaires, hypocrites in one way or another. 

At the end of the day, it is best to plan in whatever way one can for the next financial crisis and the one after that.  It seems these crisis are a means to redistribute wealth - how many that lost their home have recovered with a home and the savings they had, how many are still under water and broke while the mega rich, rich Democrats and Republicans are doing just fine, better than ever.  How many went to jail as a result of the last crisis, one, two?  I see a rigged system by all of those in power which isn't limited to politicians considering super PACs are in power even without holding the office. 

So with the system rigged by both parties, I feel I need to protect myself from the next crisis that will yet again destroy wealth at the bottom and in the middle.  They really don't want the masses to gain for very long, to a point, then take it away so one has to be aware to avoid the next crisis, whatever it is.

sol

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Re: Republican Tax Plan 2017
« Reply #1393 on: December 17, 2017, 09:36:36 AM »
Sol, while I agree with you completely on your take on this bill, I think we need to stop prognosticating disasters that will happen because of this bill and instead start thinking about ways to live with the consequences.  I'm really disappointed that this thread disintegrated into a purely political discussion. 

I'm not even that upset about the financial implications of this bill, honestly.  My family will save money this year.  We're already rich, and this bill is pretty nice to rich people.

I was just trying to highlight that it seems to be much more than a tax bill.  It's the only major piece of legislation that Congress is going to pass in the first year of the new administration, and they've really loaded it up with everything they can think of.  It repeals the individual mandate and consequently causes 13 million people to lose health insurance, because their priority is undermining Obamacare.  It reduces medicaid and ss funding, because their priority is slashing the social safety net.  It raises taxes on the middle class to fund a tax break for the upper class, because their priority is increasing wealth inequality.  These things are sort of tax reform issues, but only in the sense that they serve larger ideological goals of the party.  I'm shocked they didn't include the personhood for fetuses amendment about 529 plans.
« Last Edit: December 17, 2017, 12:03:00 PM by sol »

SaucyAussie

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Re: Republican Tax Plan 2017
« Reply #1394 on: December 17, 2017, 10:19:15 AM »

To add some perspective, we are currently at around $20 trillion in debt.  Under current law, that is projected to grow to $30 trillion over the next ten years.  The tax bill adds around $1.5 trillion to that, putting us at around $31.5 trillion.  Doesn't it seem silly to hyperventilate over the 1.5, but not concerned about the other $30 trillion?

And putting that in better perspective, that's an increase of 15% in how fast it's growing. But we both know it's actually going to be more then that, since everyone is right and they're not going to let the middle-class phase-outs actually happen. So let's spitball 20-25%.


I'm just pushing out the raw numbers, I'll let you and others spin it with your partisan nonsense.

So in your world comparing "total debt accumulated so far" with "estimated increase in debt over 10 years" and concluding that it's no big deal "just the raw numbers", but pointing out that the "percentage increase in annual deficit" is actually pretty large is "nonsense partisan spin". How odd. However clearly everyone is tired of hearing from me, so I'll shut up now.

Not at all, your posts are really good, you clearly are knowledgeable on this topic and are passionate about your politics.  We're not all always going to agree on everything.

blastoff

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Re: Republican Tax Plan 2017
« Reply #1395 on: December 17, 2017, 10:51:19 AM »
What's the word on 457 limits remaining seperate from 401k/403b?

Saw this talked about earlier in senate bill, but not since they are merging the two.

BTDretire

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Re: Republican Tax Plan 2017
« Reply #1396 on: December 17, 2017, 10:52:48 AM »
Changes that I can identify so far:

1) Roth recharacterizations will no longer be allowed but other recharacterizations will. (pg. 639)
2) Loan repayment changes as stated by SaucyAussie. (pg. 645)

Thanks so much for finding and posting this part about the Roth recharacterizations:
Quote
The conference agreement follows the House bill and the Senate amendment with a
modification. Under the provision, the special rule that allows a contribution to one type of IRA
to be recharacterized as a contribution to the other type of IRA does not apply to a conversion
contribution
to a Roth IRA. Thus, recharacterization cannot be used to unwind a Roth
conversion.
However, recharacterization is still permitted with respect to other contributions.
For example, an individual may make a contribution for a year to a Roth IRA and, before the due
date for the individual’s income tax return for that year, recharacterize it as a contribution to a
traditional IRA.277

Neither of the original bills were at all clear on this.  The meaningful new terminology appears to be their introduction of the term "conversion contribution."  Apparently, Roth conversions/recharacterizations will now be officially dead.

(I hate the change.  Recharacterizations were great insurance against market drops.  My life will be easier, but less lucrative in down years.)
This went over my head. Assuming the Tax Bill passes,
In 2018 can I do a Roth Conversion as before.
Am I correct, if I do this I can't undo it?
 Why would I want to undo it?
                       Thanks

BTDretire

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Re: Republican Tax Plan 2017
« Reply #1397 on: December 17, 2017, 11:00:53 AM »
I've always thought it a bit cheeky decrying the tax breaks for billionaires while ignoring the huge loophole we Mustachians exploit in the USA, enabling us humble millionaires to pull up to $90k/yr in income without paying a dime in income tax. I think a LOT of hard working middle class people paying large amounts of state and federal income tax would find that disgraceful...

It is disgraceful.  It’s what allows Warren Buffett (together with we mustachian millionaires) to pay a lower tax rate than his secretary, which is shockingly unfair.  And, like Warren Buffett, some of us in this forum complain about that inherent unfairness, loudly and often, and vote against our own personal financial self-interest to try to eliminate it, at the same time that we plan to continue to exploit it for as long as it does remain the law of the land.
In reference to "0% capital gains/qualified dividend provisions"
 I think it is great, in that it lets those that actually save their money and invest it, the ability to grow a nestegg while working. If you want to limit it to some income level then start taxing it, OK, what level do you suggest?

BTDretire

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Re: Republican Tax Plan 2017
« Reply #1398 on: December 17, 2017, 11:13:02 AM »
Sol, while I agree with you completely on your take on this bill, I think we need to stop prognosticating disasters that will happen because of this bill and instead start thinking about ways to live with the consequences.  I'm really disappointed that this thread disintegrated into a purely political discussion. 

I'm not even that upset about the financial implications of this bill, honestly.  My family will save money this year. 

I was just trying to highlight that it seems to be much more than a tax bill.  It's the only major piece of legislation that Congress is going to pass in the first year of the new administration, and they've really loaded it up with everything they can think of.  It repeals the individual mandate and consequently causes 13 million people to lose health insurance,
Do they lose it because they decide, since I don't get a penalty I'm not buying insurance? I don't get how a lack of mandate means they lose health insurance.
Quote

 because their priority is undermining Obamacare.  It reduces medicaid and ss funding, because their priority is slashing the social safety net.  It raises taxes on the middle class to fund a tax break for the upper class, because their priority is increasing wealth inequality.  These things are sort of tax reform issues, but only in the sense that they serve larger ideological goals of the party.  I'm shocked they didn't include the personhood for fetuses amendment about 529 plans.
Sol, you're just starting to liberal dribble. You usually have good arguments. Regroup and get off the bandwagon.

TomTX

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Re: Republican Tax Plan 2017
« Reply #1399 on: December 17, 2017, 12:08:46 PM »

 This went over my head. Assuming the Tax Bill passes,
In 2018 can I do a Roth Conversion as before.
Am I correct, if I do this I can't undo it?
 Why would I want to undo it?
                       Thanks

Lets say you do a Roth conversion of 100 shares of stock worth $10,000 in January. You owe taxes on $10,000.

The market crashes, and the stock you converted is now worth $5,000.  You still owe taxes on $10,000.

However, if you instead recharacterize back to Traditional you owe taxes on $0.

You then do a Roth conversion of 100 shares of stock worth $5,000. You owe taxes on $5,000, even though it's the same number of shares of the same stock you converted in January.