Did the GOP tax plan help or hurt you?

[BTDretire]

Finally filed for 2018. I think overall it helped a little, but last year was an anomaly for me in many ways so it's hard to compare apples to apples.

Spent almost half of 2018 without a job (most of which was on purpose), so the lower earnings meant the increase to a $12k standard deduction took a huge chunk off what I might have owed. Paid some of that savings back via the Shared Responsibility Payment since I elected to not carry insurance for ~2 months (this was a LOT less than I thought it would be - this penalty turns out to not have the sting that I was worried it would).

Suspect that I would have seen a much larger refund, except that I also sold some stock lots to come up with cash, GF and I bought a house last year. Capital gains to declare and be taxed on.

Was really unsure how the changes would play out for my situation, but in the end I got a Federal refund and owed the State money as usual (MA living up to its reputation!).

I feel like this "standard deduction" increase was one of the biggest scams in selling the plan. There isn't that big of a difference between the old standard deduction + personal exemption and the new standard deduction without a personal exemption.

Personal Exemption was $4400 IIRC? Standard deduction doubling to $12k means an additional $1600 deduction, which given the reduced income I had last year, represented a larger-than-usual percentage of income for the year. I suppose I could have clarified and said "huge marginal chunk" ;-).

I agree that the marketing of this scheme made this sound like a much bigger tax break than it actually was for many people. It definitely helped a bit on aggregate, though.

I believe the personal exemption was up to $4050 (visible on the 2017 1040 form, row 42). Your final result is correct (an individual filing Single gained ($12000-($6350+$4050)) = $1600 in deductions) because of another error: the standard deduction in 2017 was $6350, not $6000.

I agree that for an individual filing Single, the loss of the personal exemption was largely a wash. Filings with dependent children, however, lost $4050 in deductions. The child tax credit changed to compensate for this loss. I believe that filings with dependents who are not children (think elderly parent) simply lost this deduction with no corresponding gain (I could very well be wrong here).

I believe that there was a dependent credit that was for dependents who are not children.  Was worth $500, maybe?

You are correct, a new $500 credit for dependents who are not children was introduced for 2018. Thanks for pointing that out! (I found it in the 1040 instructions on page 6 (What's New)).

(I do want to mention that I was confused by your tense use. I wasn't sure if you were saying that there used to be a dependent credit or if there is one now. It's still 2018 tax season after all!)

I got a little relief with the QBI, and saver credit is something new I think.
That Credit took $400 off my tax bill. Plus the lower rates, helped my tax bill.
 (snip)

Not sure if this saver's credit is what you mean, but if so, it is not new.

You are correct, I looked back on old forms it's there, I just never noticed it.

[Arbitrage]

Great question! I'll ask my husband, he mentioned something about "bunching" and it not working out for us. I think we don't give enough? We only donate about 5k a year.

Some people (usually rich people) attempt to "bunch" all of their deductions into a single year, and then claim the standard deduction the rest of the time.

For example, if you're MFJ then your standard deduction is $24k in any given year and if you only have $10k of itemized deductions (charitable contributions, etc) then in any given year you're charitable donations aren't tax deductible anymore because they don't exceed the standard deduction you're going to get anyway.  But you can donate the exact same total amount if you give $30k to charity this year and then zero for the next two years, while claiming the $30k deduction this year and then the $24k standard deduction the next two years.  Over the course of the three year cycle, you would pay less taxes by giving 3x as much 1/3 as often than you would pay if you gave the same amount every year.

The newly increased standard deduction was designed to be slightly above the average amount that middle class families itemize, to force them into the ("simplified") standard deduction.  So you'd think that millions of middle class families would benefit from this bunching strategy, but the problem is that most of those itemized deductions aren't charitable donations that can be easily moved from one year to the next.  For most of us, a big chunk of our itemized deductions are mortgage interest and property taxes, and most jurisdictions explicitly prohibit you from deferring or prepaying those to move them into a different tax year.

Wealthy families with more than $24k in itemized deductions can still itemize every year, but they only receive benefit for the amount of their deductions that exceed 24k, instead of the amounts over 12k like it was before.  So a family that makes 150k and itemizes 25k per year now gets 1k of benefit instead of 13k of benefit, which is not nothing but it's not nearly as good as it was before.  At the same ratios a family that makes 1.5million and itemizes 250k per year now gets 226k of benefit instead of 238k of benefit.  So in terms of overall effective tax rates, the newly increased standard deductions means very little to super rich people, but is a dramatic cut to families with more moderate incomes.

I attempted to bunch deductions in 2017 in anticipation of the new $10k SALT limit, within the extent allowed - paid spring property tax bill early (bill comes in fall of the previous year, but I typically don't pay until close to the due date, which is the next year); paid some estimated state tax so that I wouldn't owe extra in April as I typically do.  Unfortunately, I just ended up triggering AMT, so it didn't benefit me. 

Under the new tax law, we're now barely over the standard deduction cap, so bunching deductions may become a viable strategy for us in the future as our mortgage draws down and/or the deduction cap goes up. 

[Evgenia]

Total tax liability increased by $15k, with nothing else changed between tax years (same income, deductions, etc.).

[nvmama]

It hurt us. We did make a bit more, but the elimination of the personal exceptions really hurt and the extra for childern didn't really help at all. Last year we got a significant return, no changes really this year but we did put more into our 401k, hoping to off set a bit of our income increase. This year we owed.  Went from 15% tax bracket to 22%.
What I find intresting (others might not)...typically we do worse off in our state taxes (MA), always getting much less back in comparison to the fed return.  This year for state, we still got back less than last year...as we had slighly more income, but it didn't change nearly as significant as the federal one.

[nvmama]

It hurt us. We did make a bit more, but the elimination of the personal exceptions really hurt and the extra for childern didn't really help at all. Last year we got a significant return, no changes really this year but we did put more into our 401k, hoping to off set a bit of our income increase. This year we owed.  Went from 15% tax bracket to 22%.
What I find intresting (others might not)...typically we do worse off in our state taxes (MA), always getting much less back in comparison to the fed return.  This year for state, we still got back less than last year...as we had slighly more income, but it didn't change nearly as significant as the federal one.

[HPstache]

It hurt us. We did make a bit more, but the elimination of the personal exceptions really hurt and the extra for childern didn't really help at all. Last year we got a significant return, no changes really this year but we did put more into our 401k, hoping to off set a bit of our income increase. This year we owed.  Went from 15% tax bracket to 22%.
What I find intresting (others might not)...typically we do worse off in our state taxes (MA), always getting much less back in comparison to the fed return.  This year for state, we still got back less than last year...as we had slighly more income, but it didn't change nearly as significant as the federal one.

Ah  yes, the classic, "let's compare refunds" to determine if the new tax plan helped or hurt.  That's not to say you're not right, but it's an unfair comparison between the years.  What was your tax owed both years?

[NorCal]

I just changed my vote after reviewing my taxes.  I'll say the plan helped a lot, although my life situation changed enough that 2018 isn't truly comparable with prior years.  I had previously expected the law to be about a wash.  My federal effective tax rate was about 4 percentage points lower than last year, which added up to thousands of dollars. Life events that impacted our tax calculations:

1. We had somewhat lower income in 2018 than 2017, reducing the hit from our highest brackets.
2. We moved from California to Colorado mid year.  This didn't impact our federal taxes much (if at all), but our state taxes are dramatically lower.
3.  My wife changed jobs mid year.  I took time off from work to help with the move.  I generated some self-employment income as a consultant post move, then found a full time job.  Our income situation was atypical.

I've actually become a pretty big fan of the new tax law.  The overall structure is simpler, and I don't have the CA SALT deduction making me do AMT calculations every year.  Getting rid of the AMT (for my personal tax situation) is a HUGE win.

[Omy]

Revising my answer after actually doing our taxes: we made $50k more in 2018 than in 2017...but paid almost $4000 less in federal taxes this year. The QBI deduction, lack of AMT, and lower tax rate overcame the loss of SALT deductions. We are relatively high earners in a HCOL area who don't need this "win", though.

[effigy98]

Just did taxes, the lowest tax bill I have ever had. Having a side business helped a lot this year. 300k+ total comp this year and 4% less total taxes.

[Fomerly known as something]

Just finished running the numbers.  I paid about 3% more more to the federal government this year.  I compared 2016 and 2018 as I sold investment properties in each year, total taxable income for those years was withing $1000.

[freya]

Hurt.

I'm the perfect storm for getting killed by this tax plan:  high tax location (NYC) and all W2 income.

The one bit of silver lining is that I still get to itemize due to being single.  The $12K exemption means that you only have to come up with $2K in charitable donations and mortgage interest to get extra deductions.

Meanwhile, people are indeed moving out of high tax locales like New York.  The exodus was already happening before the tax plan came to be, but it's sped things up.  I hope enough taxpayers stick around to pay for all the people who are benefiting from heavy state & local spending, who of course have no incentive to leave.  If I didn't have elderly family in the area who depend on me, and if I could find the things I like best about living in NYC (walkable/friendly neighborhood, incredibly rich culture) elsewhere, I woudn't hesitate to move.

[BlueHouse]

I'm the perfect storm for getting killed by this tax plan:  high tax location (NYC) and all W2 income.

I wish more people understood this.  People who work for a living pay more tax than those who have income from other sources (savings, investments, dividends, etc).   If that's not a rigged system, I don't know what is.

[JGS1980]

I'm the perfect storm for getting killed by this tax plan:  high tax location (NYC) and all W2 income.

I wish more people understood this.  People who work for a living pay more tax than those who have income from other sources (savings, investments, dividends, etc).   If that's not a rigged system, I don't know what is.

I agree with Blue. I'd also like to add that I have NO IDEA why a real estate professional or a pizza shop owner gets to be taxed less than a teacher, a lawyer, or a doctor. Why the 20%? It's not like lawyers or doctors don't get to run their own "small business".

[StarBright]

I'm very interested in who got hurt vs helped. I wonder if people wouldn't mind posting their approximate income and family situation?

I know a lot of lower income families with kids who seemed okay, and it looks like households who made over 200k did okay? We are directly in the middle (of those two groups, not 50% percentile). Not in the top 10% of income earners (closer to top 30% percentile), but certainly lucky enough to be solidly middle class.

I felt a little surgically targeted :) Live in the HCOL area in a MCOL state, remote work for a company based in a HCOL state which charges penalties, and DH is in a field where unreimbursed job expenses are a huge outlay. And we are all W2 income as well.

If this year is the best we are getting going forward we are going to have to look seriously at how to structure ourselves for taxes. I'm not even sure if it is possible to tax advantage without one of us changing jobs.

That being said - I think taxes are valuable and good and I am happy to pay my local taxes at their nutty-high rates because I get a ton of value. I also don't mind federal taxes in general, but I am feeling leaned on as a tax payer. And I think paying double taxes (on both remote work, and taxes on my taxes because of the capped SALT) is extremely problematic.

[Cranky]

We benefited from the tax changes, whilst disapproving of them. LOL

Upper end of middle income, nothing to itemize, no kids left to deduct. Our federal taxes were around $2k lower this year.

[Proud Foot]

We ended up better from the changes. A big jump in AGI from prior year due to my spouse starting a full time job late in 2017. I used our 2018 information and calculated based upon the 2017 calculations. Our Taxable income was 4k higher using the new law but total tax was 4k less. This cam from ending up in a lower marginal tax bracked and the difference in the child tax credit.

[cloudsail]

I really wish people would stop comparing the sizes of their refund or tax bill. Even if you didn't change your W4, your employer adjusted for the new tax bill and has been deducting your paycheck differently. You need to look at total taxes paid over your AGI and compare with last year. For example, we owed approximately the same amount this year as last year, but we had less taxes deducted from our paycheck every month. In the end, our effective tax rate this year was 20.5% vs. 24.3% last year.

[iris lily]

It hurt me. My country is once again operating at a deficit.

I like this answer.

My actual tax bill was obscenely low, plus we got free health insurance premiums. Rah rah being low income in america. We live on our high assets.

[freya]

I felt a little surgically targeted :) Live in the HCOL area in a MCOL state, remote work for a company based in a HCOL state which charges penalties, and DH is in a field where unreimbursed job expenses are a huge outlay. And we are all W2 income as well.

Have you considered asking to be switched from employee to contractor status?  That would be especially important for DH, because he would get to deduct those unreimbursed expenses - on top of getting the 20% pass-through deduction, plus you could claim home office deduction.  Also, if you are paid via 1099 rather than W2, you would pay taxes to your MCOL state rather than the HCOL state.  Also also, you can probably get yourself a much better retirement plan by opening solo 401Ks - you can make the maximum contribution plus 20% of your net income, have full control over the plan, and avoid fees.

You'd have to spreadsheet it after you get info on how much you'd be paid as a contractor, if the employers are willing to do it.  The compensation would have to be salary + fringe, not just salary, in order for this to make sense.  Fringe is usually in the 26-33% range.

If this were even a remote possibility at my job, I wouldn't have hesitated to make the jump.

[facepalm]

I'm the perfect storm for getting killed by this tax plan:  high tax location (NYC) and all W2 income.

I wish more people understood this.  People who work for a living pay more tax than those who have income from other sources (savings, investments, dividends, etc).   If that's not a rigged system, I don't know what is.

I agree with Blue. I'd also like to add that I have NO IDEA why a real estate professional or a pizza shop owner gets to be taxed less than a teacher, a lawyer, or a doctor. Why the 20%? It's not like lawyers or doctors don't get to run their own "small business".

Old thread, I know. But this response(s) made me think about a conversation I had the other day with some co-workers.

I'm a teacher, teaching summer school to fund my IRA. Two of my associates are also working summer school, because both got killed (their words) on their taxes this year. They both claim they owed 5K more. I know that neither of them are saving anything for retirement and are not taking advantage of our district's 403/457 plans. It's also possible that they did not have their personal deductions set correctly. I didn't ask. They are the perfect example of all W-2 income.

I, OTOH, saw a combined refund of $1300, and I make more. But I'm maxing out 403/457, as well as HSA deductions. I also have a passive loss from an estate that helped a little. I had even sold some stock at a gain to cover an emergency, and still got money back.

I can't help but think they'd be better off tax wise if they saved more. I didn't say anything, but just commiserated with them.

[nereo]

Interesting.  I had almost the same experience/conversation with two co-workers not too long ago.  One of them saw me filling out my withholding when I joined and said something like “that’s way too much - we’re in the same salary band”.  I spent about 15 seconds trying to explain why one should absolutely max out their HSA - but it was apparent it was falling on deaf ears. 

Our tax bill was manageable, and total taxes paid was essentially the same for us.  They got killed.

[FIREstache]

The GOP tax cuts definitely helped me.  It helped offset the big state tax increase.

[teen persuasion]

Only effective change for us was the $400 extra refundable CTC.  Couldn't use the extra $600 nonrefundable portion, due to lots of other nonrefundable credits that only partially got used.

It's maddening the way the credits have adverse interactions.  We could do Roth conversions to use up nonrefundable credits, if they didn't drive down our refundable credits like EITC thru its 21% phaseout (and the state's 30% match increases it to effectively 27.3% phaseout).  But when we are no longer eligible for EITC, the other nonrefundable credits will have also disappeared for us.

For now, we focus on maximizing spendable/savable $ from earnings + refundable credits (with lowest taxes possible), while not shooting us in the foot for FAFSA purposes.

[js82]

Ask me in a couple decades when we're paying it back, with interest.  This is kind of like asking someone "did taking out that loan help you or hurt you?" shortly after they've taken out a loan for non-essential, discretionary purchase, but before they've start paying it back.

As to what the original post was *probably* asking, my effective tax rate was slightly lower after passage of the tax bill.

[RangerOne]

Short term it saved us money. Entirely because of the Child tax credit, which we would not have qualified for without the increased cap. So with 2 kids, upping the cap and doubling the benefit is a large break.

The added benefit of the child tax credit in our case out weighed the benefit we would have gotten with just itemizing for a home we had just bought. The difference in our tax bill was roughly $2,000 less than it would have been for 2018. Which I would consider a decent break.

My analysis of what hurt and helped us went as follows:

1. SALT cap. Hurts us long term but not much this last year. I hit the cap for 2018 because I switched jobs which net'd me about $30k more than I would normally make. With an income of $160k+ the SALT cap hurts. Because my state tax is over $10k. However at a lower salary of $130k I don't hit the cap. But in a few more years I will likely be over that cap.

2. Personal exemptions eliminated hurts. Without personal exemptions the benefit of of itemizing a home which generally costs us $16k a year in interest is vastly reduced. Especially with kids.

3. Upped child tax credit helps a ton. Once I saw they were going to change this I knew immediately that this one tax change would make this work out in our favor. In the lower upper income level between $130k and too low to run into the alternative minimum tax, $2000k per child in tax credits for a family of 4 covers a lot of ground. It easily out weighed the benefit of the previously much larger itemized deduction. At least as long as all of that write off wasn't at the 25% income tax bracket level. If we made closer to $200k a year this probably would have hurt a bit still.

Overall I feel like some people have down played how huge a shift this is on how tax breaks were dolled out to incentivise home ownership. I recall my father in-law quipped as we were buying a home that because the cap on the mortgage deduction still encompassed the house we were about to buy that the tax law had no real impact on us. I didn't argue to strongly because I agreed on the grounds that tax wise the new system put us ahead in the short term.

But really the tax change totally changed the calculation with regards to home buying. Originally owning our home was going to reduce my taxes. However moving forward at household incomes below $140k I get the same tax rate with our without a home. So owning a home no longer tangibly saves me any taxes, unless I get a mortgage well in excess of $400k @ 4%. Before the tax law change I could arguably deduct a few hundred dollars a month in tax breaks from the cost of my home as an argument to balance out the added cost of ownership. That is simply no longer a meaningful factor.

Overall I think that if the fed government wanted to incentivise home ownership with a tax break it should have been a tax credit that phases out at extremely high incomes. I think the new phase out for the child tax credit is a fair benchmark, $200k for single and $400k for married. That would easily cover nearly all working households. And a tax credit wouldn't favor states with stupidly high housing costs or high state taxes.

How much the old system favored high income people is hard for me to say. Because I know the alternative minimum tax muddied the waters on how much some of these deductions were really worth at very high incomes.

[i_have_so_much_to_learn]

So, today I learned that the IRS doesn't permit home office deductions because of the jobs act until 2025 if you're a W2 employee.

Because of work from home, I spent a ton of money on a home office that I can't deduct anymore.

[nereo]

So, today I learned that the IRS doesn't permit home office deductions because of the jobs act until 2025 if you're a W2 employee.

Because of work from home, I spent a ton of money on a home office that I can't deduct anymore.

Yup. A lot of us are going to miss out because of this. Which is why it’s always worth checking the tax code before counting on any deductions or credits.

[i_have_so_much_to_learn]

So, today I learned that the IRS doesn't permit home office deductions because of the jobs act until 2025 if you're a W2 employee.

Because of work from home, I spent a ton of money on a home office that I can't deduct anymore.

Yup. A lot of us are going to miss out because of this. Which is why it’s always worth checking the tax code before counting on any deductions or credits.

Source: https://www.irs.gov/newsroom/irs-reminds-taxpayers-of-the-home-office-deduction-rules-during-small-business-week

The home office deduction is available to qualifying self-employed taxpayers, independent contractors and those working in the gig economy. However, the Tax Cuts and Jobs Act suspended the business use of home deduction from 2018 through 2025 for employees. Employees who receive a paycheck or a W-2 exclusively from an employer are not eligible for the deduction, even if they are currently working from home.