Republican Tax Plan 2017

[Wrecks]

Ways to take advantage of the tax plan:

Try to get convert your job into a pass-through corporation, if at all possible, and especially if your marginal tax rate is above whatever tax rate they end up setting for those corporations.  They may exclude "service professionals" like lawyers, doctors, accountants, etc. Some sources say there may be an exception to that exclusion if you make <$500k. Stay tuned to that.

Anyone have other suggestions? (Snark allowed, but as long as its sandwiched into a suggestion - snark - suggestion format).

I suspect many service professionals will explore whether their business isn’t just providing disqualified professional services, but also consists of owning office space and equipment that can be put in a separate entity and then leased to their professional service business, and owning an administrative support service that provides contract workers to their professional service business (e.g., secretarial services, legal assistants, nurses, etc.).

I don't understand what you're saying, or I'm misunderstanding the tax plan. Presumably it will still allow for pass through business expenses to be deducted.

This tax plan is just awful.

[sokoloff]

We make a fair bit less than Wrecks, but using some online calculators (of uncertain accuracy), I estimated this plan will cost us over $20K per year with the loss of SALT and capping of property tax deductions and there isn't much in the way of marginal rate reduction to offset.

[gerardc]

4. Work for some organization that has a deferred-compensation 457(b) plan. Seriously, if your employer doesn't have this, they suck. No matter how much free coffee they give you in the cafeteria, it's not $18,000 worth.

We have this 457(b), but AFAICT the account is paid out in full and taxed as soon as you quit your job, so you'll still be taxed at a high rate and won't be able to slowly roll into a Roth. What's the point?


Is this bill taking effect for the 2017 tax year?

[Wrecks]

We make a fair bit less than Wrecks, but using some online calculators (of uncertain accuracy), I estimated this plan will cost us over $20K per year with the loss of SALT and capping of property tax deductions and there isn't much in the way of marginal rate reduction to offset.

$12k was the very, very conservative estimate. It's likely it will be a whole lot more. And for what? For what?

[sokoloff]

We make a fair bit less than Wrecks, but using some online calculators (of uncertain accuracy), I estimated this plan will cost us over $20K per year with the loss of SALT and capping of property tax deductions and there isn't much in the way of marginal rate reduction to offset.

$12k was the very, very conservative estimate. It's likely it will be a whole lot more. And for what? For what?

Exactly! We sure aren't worried about where our next meal is coming from, but these "cuts" seem non-existent for most people and I'd be happier paying my tax increase if it was to reduce/eliminate the deficit. Instead, it seems like "screw over those blue state assholes who don't support us".

[Debts_of_Despair]

4. Work for some organization that has a deferred-compensation 457(b) plan. Seriously, if your employer doesn't have this, they suck. No matter how much free coffee they give you in the cafeteria, it's not $18,000 worth.

We have this 457(b), but AFAICT the account is paid out in full and taxed as soon as you quit your job, so you'll still be taxed at a high rate and won't be able to slowly roll into a Roth. What's the point?

That seems highly unlikely.  You could potentially get hit with a major tax bill.  I know with mine that when I leave my employer, I am free to do whatever I want.  Leave it in the account or start taking distributions without penalty, regardless of age.

[Peter Parker]

4. Work for some organization that has a deferred-compensation 457(b) plan. Seriously, if your employer doesn't have this, they suck. No matter how much free coffee they give you in the cafeteria, it's not $18,000 worth.

Okay--I'm lucky enough to  have this.  I've had a hard time keeping up with this tax bill. 

1.  Can I continue to contribute the MAX to my 457 AND 403bs?
2.  Can I continue to utilize the 50 plus catch up provision in BOTH?

These were things I was doing before this plan.  Am I missing anything here???

[MrStash2000]

4. Work for some organization that has a deferred-compensation 457(b) plan. Seriously, if your employer doesn't have this, they suck. No matter how much free coffee they give you in the cafeteria, it's not $18,000 worth.

Okay--I'm lucky enough to  have this.  I've had a hard time keeping up with this tax bill. 

1.  Can I continue to contribute the MAX to my 457 AND 403bs?
2.  Can I continue to utilize the 50 plus catch up provision in BOTH?

These were things I was doing before this plan.  Am I missing anything here???

1. Yes
2. Yes

[Wise Virgin]

Don't forget the black hole which is the war/conflict in Afghanistan.

Loss of lives ... drain on taxpayer's  money ....   no clear goal ... no end in sight.

GW Bush made several large decisions of very poor quality.

The peace dividend that should have addressed the deficit/debt - Bill Clinton made a start on that as he was leaving office - was squandered by the turn of administrations. To pay off a debt of this magnitude would require decades of steady consistent prudent decisions.

Our political system is not exactly set up to provide us with decades of steady consistent prudent decisions, we change out our representatives every two years, our senators every six, our presidents with their own agendas every four to eight.

Also the world doesn't hold still. If there were a Jeopardy! question in the 1970s that was "A hermit communist paranoid nation with a standing army in uniform in the millions and nuclear weapons" the answer would have been "What is China?" China was granted most favored nation trade status to interest it in washing machines, fashion, and capitalism instead of war. It seems to have worked. "Star Wars" type policies are expensive.

[Paul der Krake]

It's a good time to be a standard deduction taxpayer! We're looking at an immediate $5,000 cut. We thank you, other taxpayers and future generations, for your sacrifice to our own welfare. We'll be sure to keep her family in our thoughts and prayers.

Now we just need Congress to repeal FICA and we may finally have enough oxygen to create jobs for the hard working men and women of this country.

[bacchi]

Do you consider the expense of the massive defense buildup that won the Cold War? How we outspent the Soviet Union until it collapsed without a shot being fired?

As Reagan learned, and as Governor Brownback learned, and as the current Congress will learn, you can't cut tax revenues drastically and hope to grow your way into more tax revenues.

http://www.businessinsider.com/kansas-experiment-with-tax-cutting-failed-on-its-own-terms-2017-6
https://www.npr.org/2017/06/07/531886684/the-kansas-tax-cut-experiment-comes-to-an-end-as-lawmakers-vote-to-raise-taxes

Kansas lawmakers have voted to roll back a series of major tax cuts that became an example for conservative lawmakers around the country but didn't deliver the growth and prosperity promised by Gov. Sam Brownback, a Republican.

A coalition of conservative Republicans, some of whom voted for sweeping tax cuts in 2012 or defended them in the years since, sided with moderates and Democrats to override Brownback's veto of a $1.2 billion tax increase.

It didn't work in the 80s, it didn't work from 2012-2017, and it won't work in 2018-2020.

[bacchi]

Right, but deducting the expenses from your disqualified professional services business leaves the taxpayer with net income that’s all taxed at the regular rate. Splitting the business into two pieces—one that is strictly the disqualified professional services and one that does everything else—should let the TP get some of the overall net income into the “everything else” business, on which the TP may then exclude a portion of the net income under the pass-through treatment.

Is the exemption based on revenue or net income? If it's revenue, the lease arrangement is a good plan and would be easy to set up.

[Wrecks]

Do you consider the expense of the massive defense buildup that won the Cold War? How we outspent the Soviet Union until it collapsed without a shot being fired?

As Reagan learned, and as Governor Brownback learned, and as the current Congress will learn, you can't cut tax revenues drastically and hope to grow your way into more tax revenues.

http://www.businessinsider.com/kansas-experiment-with-tax-cutting-failed-on-its-own-terms-2017-6
https://www.npr.org/2017/06/07/531886684/the-kansas-tax-cut-experiment-comes-to-an-end-as-lawmakers-vote-to-raise-taxes

Kansas lawmakers have voted to roll back a series of major tax cuts that became an example for conservative lawmakers around the country but didn't deliver the growth and prosperity promised by Gov. Sam Brownback, a Republican.

A coalition of conservative Republicans, some of whom voted for sweeping tax cuts in 2012 or defended them in the years since, sided with moderates and Democrats to override Brownback's veto of a $1.2 billion tax increase.

It didn't work in the 80s, it didn't work from 2012-2017, and it won't work in 2018-2020.

Well I can tell you my service providers are going to be paying less in taxes...because I'm cutting back on all of them. Already cut my housekeeper back to every other week--that's $3750 out of her pocket. Cut my assistant back to 10 hours per week--that's $15,600 out of her pocket. And I plan on cutting the lawn guy back to once a month next year, so roughly $1500 out of his pocket.

Doesn't seem like a great way to grow revenue, does it? I assume other people who are in the 38% who will actually see a tax increase from this bill will also be cutting back. Taking money out of the hands of spenders is generally a poor way to grow the economy.

So if anything this is even worse than previous tax cuts for the economy. Previous tax cuts may have been, at most, neutral for the economy. This one is actually going to hurt.

[And before you say anything about my service providers sounding extravagant--I am self-employed and work 70+ hours a week]

[Wrecks]

Ways to take advantage of the tax plan:

Try to get convert your job into a pass-through corporation, if at all possible, and especially if your marginal tax rate is above whatever tax rate they end up setting for those corporations.  They may exclude "service professionals" like lawyers, doctors, accountants, etc. Some sources say there may be an exception to that exclusion if you make <$500k. Stay tuned to that.

Anyone have other suggestions? (Snark allowed, but as long as its sandwiched into a suggestion - snark - suggestion format).

I suspect many service professionals will explore whether their business isn’t just providing disqualified professional services, but also consists of owning office space and equipment that can be put in a separate entity and then leased to their professional service business, and owning an administrative support service that provides contract workers to their professional service business (e.g., secretarial services, legal assistants, nurses, etc.).

I don't understand what you're saying, or I'm misunderstanding the tax plan. Presumably it will still allow for pass through business expenses to be deducted.

This tax plan is just awful.

Right, but deducting the expenses from your disqualified professional services business leaves the taxpayer with net income that’s all taxed at the regular rate. Splitting the business into two pieces—one that is strictly the disqualified professional services and one that does everything else—should let the TP get some of the overall net income into the “everything else” business, on which the TP may then exclude a portion of the net income under the pass-through treatment.

Ah, got it. Unfortunately I don't have "other services" other than my renting my brain :-)

[Wrecks]

I think all of our understanding is that passive income from an LLC is going to be taxed at a much lower rate than active income.

So what about active passthroughs agreeing to share revenue. For example, I'd invest in active passthrough B, generating passive income taxed at a lower rate. Passthrough B would invest in passthrough C, same deal. Passthrough C would invest in me.

So everyone is generating passive income.

Just trying to figure a way out from under the hammer. Can anyone explain to me WHY active passthroughs get preferentially screwed?

[johndoe]

You can find the text of the bill that passed here (searchable pdf) from bloomberg: https://assets.bwbx.io/documents/users/iqjWHBFdfxIU/rXqXuQfYbRas/v0

Awesome! My favorite undeserved benefit persists! Thanks everyone else!

Yes! I agree. This is gold for those of us with 457s

Not sure I understand... what is proposed to change with 457s?  What "undeserved benefit" do you mean, the ability to have a 457 along with 401k?

[sol]

We make a fair bit less than Wrecks, but using some online calculators (of uncertain accuracy), I estimated this plan will cost us over $20K per year with the loss of SALT and capping of property tax deductions and there isn't much in the way of marginal rate reduction to offset.

We have to be careful about what we're talking about.  Are you paying $20k in extra taxes, or are you losing $20k in deductions (and thus paying $5k in extra taxes at 25% on that 20k)?

Someone asked for numbers?  A family like mine, with two parents and three kids and a house, could previously claim 20k in personal and dependent exemptions, plus 10k in mortgage interest, plus 5k in property taxes, plus about $1k in sales tax (my state takes the sales tax deduction instead of the state income tax deduction), plus whatever you donate to charity.  So that was previously an easy $36k of tax-free income before even touching your 401k contributions.

The new plan keeps the mortgage interest but repeals all of the rest, so this family will only be able to itemize 10k instead of 36k.  That means they will have to take the new 24k standard deduction.  24k is 12k less than the 36k they were sheltering the previous year, so they'll pay 25% taxes on that extra 12k of income, or a $4k tax increase.

The child tax credit would erase $3k of that $4k, at least for the first few years until it is scheduled to phase out.  The changes in the brackets would also save us a few hundred.  The net effect is that our taxes should only go up by a few hundred dollars per year, next year, but then much more in later years as the child tax credit is phased out and the new lower inflation adjustments kick in to force down the brackets.

But think about all of the secondary effects of this new plan.  Charitable deductions are no longer deductible, so charities will receive less.  Whatever happend to "compassionate conservates"?  Mortgage interest is technically not revoked, but since all of the other deductions and exemptions are revoked the mortgage interest one is worthless unless you have more than 24k of mortgage interest, which restricts it to a very narrow band of people who live in high tax states and own home between about 700k and 1mil dollars.  State sales and income taxes lose their deductible status, which has a whole long list of add-on effects that I'm still working through but which don't look good for anyone.  I don't think Republicans, or anyone else really, has spent the time to think through all of these repercussions.  It will be an interesting next few weeks as all of this comes to light.

[FIREchiefsr]

Does anyone know how the new AMT is supposed to work?  It would seem to me that someone taking just the standard deduction could still pay AMT under the Senate bill - so effectively, the AMT simply takes away the benefit of the new lower tax brackets for people above the threshold?

I also went through an example last night that shows that I would pay the AMT under the Senate bill, even if I take the standard deduction. If your effective tax rate is less than 28%, and income is basically from W-2 income, there’s a zone where you seem to be subject to AMT without any itemized deductions. I don’t know whether that’s the “intent.” It seems like an oddity to apply an “alternative” system in that case. An obvious “fix” would be to exclude taxpayers who elect the standard deduction. I didn’t look closely, because it doesn’t apply to me, but it seems that income that qualifies for the pass-through treatment is not proposed to be added back for AMT purposes.

You folks may have missed my earlier post regarding AMT.

The AMT numbers don't make sense.  They would still result in a joint filer at the top of the 24% bracket paying AMT, even if they're not claiming anything other than the standard deduction.  The whole AMT concept is designed to limit deductions and force some level of tax payments.  If somebody isn't deducting anything, I don't understand how they could still have to pay the AMT.

I tried to decipher the inflation adjustments, and it may be that the thresholds published in the bill (exemption and phaseout threshold), are in 2011 dollars, which will then be escalated to 2018 equivalents.  That would "almost" eliminate the AMT for the situation I described above.  I will be interested in hearing others' understanding of the revised AMT for individuals.

Edit:  I just ran the comparison of the published AMT thresholds against the original Senate brackets.  In this case, the AMT stays just below the 25% bracket top.  Do you suppose that when they wedged the AMT revival in at the eleventh hour they forgot to take into account their earlier amendment to reduce the brackets.  Nah, that would never happen in Washington.........would it?

[aaahhrealmarcus]

We make a fair bit less than Wrecks, but using some online calculators (of uncertain accuracy), I estimated this plan will cost us over $20K per year with the loss of SALT and capping of property tax deductions and there isn't much in the way of marginal rate reduction to offset.

$12k was the very, very conservative estimate. It's likely it will be a whole lot more. And for what? For what?

For the aristocracy!

[sokoloff]

We make a fair bit less than Wrecks, but using some online calculators (of uncertain accuracy), I estimated this plan will cost us over $20K per year with the loss of SALT and capping of property tax deductions and there isn't much in the way of marginal rate reduction to offset.

We have to be careful about what we're talking about.  Are you paying $20k in extra taxes, or are you losing $20k in deductions (and thus paying $5k in extra taxes at 25% on that 20k)?

The former is what I implied and what I mean.

We paid a hair over $63K in state taxes in 2016 as an example. That was perhaps slightly higher than the prior years but was not a particularly unusual year. (From the above, you can conclude that our marginal rate is also higher than 25%.)

[Abe]

Ways to take advantage of the tax plan:

Try to get convert your job into a pass-through corporation, if at all possible, and especially if your marginal tax rate is above whatever tax rate they end up setting for those corporations.  They may exclude "service professionals" like lawyers, doctors, accountants, etc. Some sources say there may be an exception to that exclusion if you make <$500k. Stay tuned to that.

Anyone have other suggestions? (Snark allowed, but as long as its sandwiched into a suggestion - snark - suggestion format).

I suspect many service professionals will explore whether their business isn’t just providing disqualified professional services, but also consists of owning office space and equipment that can be put in a separate entity and then leased to their professional service business, and owning an administrative support service that provides contract workers to their professional service business (e.g., secretarial services, legal assistants, nurses, etc.).

That's a really good idea!

[Abe]

We have this 457(b), but AFAICT the account is paid out in full and taxed as soon as you quit your job, so you'll still be taxed at a high rate and won't be able to slowly roll into a Roth. What's the point?

Is this bill taking effect for the 2017 tax year?

You can roll the 457b into an IRA and withdraw it slowly over time, just like a 401k. It is not taxed in full at the time of retirement (at least not my parents' ones).

[Abe]

Anyone know if the long-term capital gains rates changed at all?

[MrStash2000]

I found a site that calculates the impact of the House and the Senate tax plan.

Check out: http://taxplancalculator.com/calc

[sol]

I found a site that calculates the impact of the House and the Senate tax plan.

Check out: http://taxplancalculator.com/calc

Please note that calculator is VERY simplified, and apparently simplified in a biased way.  It doesn't account for 401k or 457b contributions, so you have to manually subtract those off of your income.  It doesn't account for dividend or capital gains income.  It doesn't account for health insurance subsidies or the impact of repealing the individual mandate on next year's premiums (aka the death spiral).  It doesn't account for HSA or FSA contributions, or student loans or tuition wavers, or rental expenses, or any of a thousand other things that might totally change your taxes due.  And most importantly, it only applies to 2018 but the brackets and exemptions (in the Senate plan) start phasing out immediately so this calculator gives you the best case scenario, not your real situation in the future.

It also very incorrectly estimated my current SALT deductions, like it thinks I can currently deduct $12k, when in reality it's more like $3k.  That $9k difference shifts the baseline dramatically.  That site says the new plan should save me $2k in 2018, but it's assuming I'm currently deducting $9k more than I really am.  That's falsely giving me credit for almost $3k of taxes paid, making the current situation look worse than reality and the GOP tax plan look better than reality (and then suggesting it will save me $2k instead of costing me $1k) by artificially inflating the amount I currently pay.   I'm not sure if this is deliberate obfuscation by a biased programmer, or just a really shitty estimation tool, but it means you really have to double check the "current tax system" results against your 2016 return pretty carefully to see if they have any idea wtf they're talking about.

I'm also really struggling to disentangle the effects of owning rental properties of various sorts in this new plan.

With that said, it does do a nice job of summarizing the changes to exemptions and brackets of the House and Senate versions.  In my cases, that means being forced into the new standard deduction despite the errors mentioned above.  Unfortunately, it doesn't provide much help translating that shift to the standard deduction into the secondary impacts of the loss deductibility for things like charitable donations, mortgage interest, and property taxes, and the resulting complications to things like rental depreciation, 529 contributions, EITC or simplified FAFSA eligibility, and the dramatic income reductions that accompany FIREing off of a crazy high savings rate.

[frugalecon]

We make a fair bit less than Wrecks, but using some online calculators (of uncertain accuracy), I estimated this plan will cost us over $20K per year with the loss of SALT and capping of property tax deductions and there isn't much in the way of marginal rate reduction to offset.

We have to be careful about what we're talking about.  Are you paying $20k in extra taxes, or are you losing $20k in deductions (and thus paying $5k in extra taxes at 25% on that 20k)?

Someone asked for numbers?......... It will be an interesting next few weeks as all of this comes to light.

Thanks for sharing your thinking, Sol.  I think it will be an interesting 18 months. Until we get through the tax filing season for 2018, I don’t think we will have a clear picture. I will be interested to see if this creates a recession in blue America, if only because people pull back because of uncertainty and adjustment.

The main thing I am doing is pulling deductions forward into this year and thinking about whether I want to switch my TSP contributions to Roth.

[Wrecks]

We make a fair bit less than Wrecks, but using some online calculators (of uncertain accuracy), I estimated this plan will cost us over $20K per year with the loss of SALT and capping of property tax deductions and there isn't much in the way of marginal rate reduction to offset.

We have to be careful about what we're talking about.  Are you paying $20k in extra taxes, or are you losing $20k in deductions (and thus paying $5k in extra taxes at 25% on that 20k)?

Someone asked for numbers?......... It will be an interesting next few weeks as all of this comes to light.

Thanks for sharing your thinking, Sol.  I think it will be an interesting 18 months. Until we get through the tax filing season for 2018, I don’t think we will have a clear picture. I will be interested to see if this creates a recession in blue America, if only because people pull back because of uncertainty and adjustment.

The main thing I am doing is pulling deductions forward into this year and thinking about whether I want to switch my TSP contributions to Roth.

What deductions are you pulling forward into this year?

[teen persuasion]

I found a site that calculates the impact of the House and the Senate tax plan.

Check out: http://taxplancalculator.com/calc

VERY simplified, indeed!

Ignored EITC (fully refundable), ignored AOTC (partially refundable), made it appear that the House and Senate versions have fully refundable family credits (there's a caveat that things might not be as they appear, but I'm pretty certain only the first $1k of the CTC may be refundable, not the other portions), ignores the Retirement Saver's credit...

This calculator makes it appear that I'd get a larger refund with both the House and the Senate versions, but as they haven't increased or added any new refundable credits that I'm aware of, at best my refund will be exactly the same.  For now, until things begin expiring.

[frugalecon]

We make a fair bit less than Wrecks, but using some online calculators (of uncertain accuracy), I estimated this plan will cost us over $20K per year with the loss of SALT and capping of property tax deductions and there isn't much in the way of marginal rate reduction to offset.

We have to be careful about what we're talking about.  Are you paying $20k in extra taxes, or are you losing $20k in deductions (and thus paying $5k in extra taxes at 25% on that 20k)?

Someone asked for numbers?......... It will be an interesting next few weeks as all of this comes to light.

Thanks for sharing your thinking, Sol.  I think it will be an interesting 18 months. Until we get through the tax filing season for 2018, I don’t think we will have a clear picture. I will be interested to see if this creates a recession in blue America, if only because people pull back because of uncertainty and adjustment.

The main thing I am doing is pulling deductions forward into this year and thinking about whether I want to switch my TSP contributions to Roth.

What deductions are you pulling forward into this year?

Charitable. We have a multiyear planned gift, plus contributions we would ordinarily make in the first six months of 2018. Saving those as deductions will save about $4000 in taxes.

[accolay]

The debt is going to increase anyway. You know that, right?

This Republican tax plan should be viewed as more than a tax plan, it's also a geopolitical power maneuver to keep us relevant and check the influence of competitors. Similar to "Star Wars."

So, the debt is going to increase anyway, so give the wealthiest more money? That makes no sense.

Neither does that last quoted statement. What about the tax plan is going to keep the United States relevant exactly?

[tralfamadorian]

I'm also really struggling to disentangle the effects of owning rental properties of various sorts in this new plan.

As far as I have been able to find thus far, not much for the little guys.  The real estate CPA's doc https://docs.google.com/document/d/1wXgWAnxAvPcUVK2a8Ixlqvpts6pirkDZ49Jba5Cmzwc/edit#heading=h.27o9199n8kgc
had everyone worried when the House plan initially made real estate active income subject to SE taxes. That bit didn't made it in the passed House bill and is not in the Senate bill at all.  The rehab credit is being severely reduced (senate) or eliminated (house).

If your rental business is big enough, S corps may be attractive enough that some folks decide to switch over. Also bonus depreciation from 50% increased to 100% and property amort is decreasing to 25 years (big deal for commercial that was 39 years). There are some wording changes around 1031 seeming to eliminate the already winnowed down possibility of use for vacation houses. 

[bacchi]

Thanks for sharing your thinking, Sol.  I think it will be an interesting 18 months. Until we get through the tax filing season for 2018, I don’t think we will have a clear picture. I will be interested to see if this creates a recession in blue America, if only because people pull back because of uncertainty and adjustment.

I was thinking the same thing. There's probably a fair chance that consumer spending will decrease in Q1 of next year as everyone absorbs changes in their tax situation. Corporations will be living it up, and exec bonuses will increase, but consumers can't be immediately sure if they'll be paying more or less.

The main thing I am doing is pulling deductions forward into this year and thinking about whether I want to switch my TSP contributions to Roth.

I'm also pulling forward charitable gifts.

[djadziadax]

Are most of the people getting punched in the wallet because they count on the mortgage and property tax deductions?

Yes, and the personal and dependent exemptions that we're losing.

We were able to itemize far more than 24k, and now we can't anymore.  For 2018 it will be about $10-12k of income that I will have to pay taxes on that was previously sheltered.  The increased child tax credit takes some of the sting out of it, but that's s temporary measure and will be phasing out over the next few years.

An odd effect of that, although not directly relevant to Sol in WA, is that many who lose the ability to itemize will consequently pay higher state income taxes, too.

My state allows either a very modest standard deduction (on the order of $4,300 for MFJ) or the balance of the taxpayer’s federal itemized deductions after subtracting this state’s income taxes. So those who had been itemizing (just under 50%), but no longer can, will see their state taxable income increased by the amount by which their previously itemized deductions (other than state income tax) would have exceeded that $4,300 standard deduction.

So glad someone finally noticed that...AGI will be higher for many which will definitely increase SALT taxes. Will be the case for us in NY...not complaining, just wondered how that is not being addressed in the media.

No systemic thinking used in journalism...

[sol]

So glad someone finally noticed that...AGI will be higher for many which will definitely increase SALT taxes.

This bill is FULL of those kind of hidden repercussions, that haven't yet been widely reported by the press.  I consider this to be one of the more minor ones, but you're right that the plan tries to lower tax bracket rates but increase the amount of income you pay those rates on, and that's roughly a wash for federal taxes but it has a whole host of secondary consequences associated with increasing your AGI, including increasing your state taxes due.

Also changing your EITC and FAFSA eligibility.  Also changing your long term capital gains taxes.  And a bunch of others.  Basically any credit or exemption that is tied to or phased out by your income is suddenly going to change, and none of the tax evaluations I have seen published so far have taken any of that into account.  But the short version is pretty obvious; by increasing your AGI you're going to get fewer benefits.

[djadziadax]

Sol cares about the little people too much. At which point do you stop feeling sorry for the electorate that keeps getting shat on but comes back for more?

Who asked you to feel sorry?

As one of the "little people" I keep being scolded about voting against my best interests. The scolds don't know what my best interests are. They think they know, but they don't, because they don't know me.

We "little people" have our own powers, our own wisdoms, and our own virtues. Don't feel sorry for us, it's unpleasant and patronizing, and annoying. We want jobs; then we'll take it from there.

+1...they must misunderstand their desire to conform to the one true narrative listed on the pages on the NY Times as the only true version of life. I have seen that somewhere else...under Stalin! 'Conform to what we tell you is good for you'...'yes, comrads!' Is the only acceptable answer. Yes, I saw and heard that in my formative years growing up under socialism....Sad! I am for freedom of though for everyone! Go, wise virgin!

[djadziadax]

Do you consider the expense of the massive defense buildup that won the Cold War? How we outspent the Soviet Union until it collapsed without a shot being fired?

As Reagan learned, and as Governor Brownback learned, and as the current Congress will learn, you can't cut tax revenues drastically and hope to grow your way into more tax revenues.

http://www.businessinsider.com/kansas-experiment-with-tax-cutting-failed-on-its-own-terms-2017-6
https://www.npr.org/2017/06/07/531886684/the-kansas-tax-cut-experiment-comes-to-an-end-as-lawmakers-vote-to-raise-taxes

Kansas lawmakers have voted to roll back a series of major tax cuts that became an example for conservative lawmakers around the country but didn't deliver the growth and prosperity promised by Gov. Sam Brownback, a Republican.

A coalition of conservative Republicans, some of whom voted for sweeping tax cuts in 2012 or defended them in the years since, sided with moderates and Democrats to override Brownback's veto of a $1.2 billion tax increase.

It didn't work in the 80s, it didn't work from 2012-2017, and it won't work in 2018-2020.

Well I can tell you my service providers are going to be paying less in taxes...because I'm cutting back on all of them. Already cut my housekeeper back to every other week--that's $3750 out of her pocket. Cut my assistant back to 10 hours per week--that's $15,600 out of her pocket. And I plan on cutting the lawn guy back to once a month next year, so roughly $1500 out of his pocket.

Doesn't seem like a great way to grow revenue, does it? I assume other people who are in the 38% who will actually see a tax increase from this bill will also be cutting back. Taking money out of the hands of spenders is generally a poor way to grow the economy.

So if anything this is even worse than previous tax cuts for the economy. Previous tax cuts may have been, at most, neutral for the economy. This one is actually going to hurt.

[And before you say anything about my service providers sounding extravagant--I am self-employed and work 70+ hours a week]

So are you actually advocating that people like you in the 1% of income should play less tax? That it is not fair that the people who create jobs for others are taxed more?

[djadziadax]

I found a site that calculates the impact of the House and the Senate tax plan.

Check out: http://taxplancalculator.com/calc

Please note that calculator is VERY simplified, and apparently simplified in a biased way.  It doesn't account for 401k or 457b contributions, so you have to manually subtract those off of your income.  It doesn't account for dividend or capital gains income.  It doesn't account for health insurance subsidies or the impact of repealing the individual mandate on next year's premiums (aka the death spiral).  It doesn't account for HSA or FSA contributions, or student loans or tuition wavers, or rental expenses, or any of a thousand other things that might totally change your taxes due.  And most importantly, it only applies to 2018 but the brackets and exemptions (in the Senate plan) start phasing out immediately so this calculator gives you the best case scenario, not your real situation in the future.

It also very incorrectly estimated my current SALT deductions, like it thinks I can currently deduct $12k, when in reality it's more like $3k.  That $9k difference shifts the baseline dramatically.  That site says the new plan should save me $2k in 2018, but it's assuming I'm currently deducting $9k more than I really am.  That's falsely giving me credit for almost $3k of taxes paid, making the current situation look worse than reality and the GOP tax plan look better than reality (and then suggesting it will save me $2k instead of costing me $1k) by artificially inflating the amount I currently pay.   I'm not sure if this is deliberate obfuscation by a biased programmer, or just a really shitty estimation tool, but it means you really have to double check the "current tax system" results against your 2016 return pretty carefully to see if they have any idea wtf they're talking about.

I'm also really struggling to disentangle the effects of owning rental properties of various sorts in this new plan.

With that said, it does do a nice job of summarizing the changes to exemptions and brackets of the House and Senate versions.  In my cases, that means being forced into the new standard deduction despite the errors mentioned above.  Unfortunately, it doesn't provide much help translating that shift to the standard deduction into the secondary impacts of the loss deductibility for things like charitable donations, mortgage interest, and property taxes, and the resulting complications to things like rental depreciation, 529 contributions, EITC or simplified FAFSA eligibility, and the dramatic income reductions that accompany FIREing off of a crazy high savings rate.

SOL, your 4k extra in tax will be offset by child credit of $1600 each (for 3 kids), not $1000 per your estimate, to completely erase the 4k.

Perhaps you did not take that into account the increase in child credit.

[sol]

SOL, your 4k extra in tax will be offset by child credit of $1600 each (for 3 kids), not $1000 per your estimate, to completely erase the 4k.

Perhaps you did not take that into account the increase in child credit.

If you run the calculator, you'll see that it definitely does take into account the expanded child tax credits.  That's the whole gimmick.  Making those temporarily larger is how they make the bill look like a tax cut in the short term, even though it's a tax increase for most folks in the long term.

I found a site that calculates the impact of the House and the Senate tax plan.

Check out: http://taxplancalculator.com/calc

Please note that calculator is VERY simplified

I spent some more time with that calculator, trying to force it to give me more realistic numbers.  Because it reports artificially high SALT taxes under the current tax system, I had to modify the "other deductions" box down to a fake (lower) number to get my total deductions to line up.  I think I can make it work, by putting my AGI in the "income" box and manually adjusting the deductions box until they add up to the right total, even if the breakdown is wrong.

Doing it this way at least gives me numbers that look right, under the current system.  The taxable income, deductions, and tax bill boxes on the results page all line up correctly with my actual 2016 return.  Since I'm assuming I'll be forced into the standard deduction under either the House or the Senate bill, and lose it all anyway, I'm not sure it matters.

So strictly on the brackets side, this plan looks like it would save my family about $4k in 2018, on about $100k of taxable income.  It would increase our taxable income by about $9k, which is very close to what I was calculating by other methods, but it taxes that new higher income at a lower effective rate by adjusting the bracket cutoffs.  Unfortunately, every penny of that $4k advantage is due to the expanded child tax credit which is temporary and will phase out over time, taking us back to where we started.  And the new inflation adjustments will push up the bracket rates over time, of course, but at least in the first year that calculator says this plan would save us money on taxes.  It will require a separate analysis to figure out what it will cost us in increased health care premiums due to repealing the individual mandate.

And all of this assumes that both our HSA and FSA would stay deducible, which I'm not entirely clear on yet.  What else is in this tax bill that would raise your AGI? 

[Wise Virgin]

The debt is going to increase anyway. You know that, right?

This Republican tax plan should be viewed as more than a tax plan, it's also a geopolitical power maneuver to keep us relevant and check the influence of competitors. Similar to "Star Wars."

So, the debt is going to increase anyway, so give the wealthiest more money? That makes no sense.

Neither does that last quoted statement. What about the tax plan is going to keep the United States relevant exactly?

Reduction in the corporate rate and repatriation of funds held out of the country.

As a thought experiment, imagine yourself as a competitor to the United States, as things are now, and alternatively as they would be under the new plan. Which do you like better?

[farfromfire]

Sol, 25% of 12 is 3, so afaik you'll get a 1.8k credit (for now). Otherwise I agree with you.

[MustachianAccountant]

Well... everyone who makes an income gets taxed. Some people get reductions/exemptions from the tax based on certain variables, including the amount of income they make, but all labor/income is taxed (unless you are getting paid 'under the counter').

False. 45% of Americans pay $0 in income tax. If you pay $0 income tax, you made an income that was not taxed. Period.

[MustachianAccountant]

I have a couple of questions.
I see for a married couple the first $24k is at 0% and the 12% upto $90k.
 So is that $90k - $24k = $66k x 12% = $7,920 or 12% x $90k = $10,800?
https://www.washingtonpost.com/graphics/2017/business/tax-bill-q-and-a/?utm_term=.a3f9eea9ddb3

Also,

 "Tax Preparation

Taxpayers who itemize their returns would no longer be able to deduct the amount that their tax preparation specialist billed them or any similar expenses. Since the tax bill aims to reduce the number of taxpayers who itemize, in theory fewer people should require professional tax help (with the exception of wealthier people, who can afford to lose this break*)."
* Seems like the New York Times is judging!

I have a sole proprietor business, do I lose this deduction?
I hate paying my tax preparer, but an hour in his office and it's done, plus I have someone to fall back on.

Not sure if this has been answered yet, but no, you don't lose this. What you reference is people who deduct tax preparer fees on Schedule A, but as a Sole Proprietor, you'd deduct them on Schedule C as a business expense.

[MustachianAccountant]

I am single, no kids, live in NY, very high property taxes, and I make high 6 figures/low 7 figures (my income is variable because I'm self-employed). I am a consultant so no special treatment for my pass through.

Yeah I can afford it. If it were being used to give the middle middle class a meaningful tax break, or to pay for health care or infrastructure or educational initiatives I'd be fine with that. But I don't like money siphoned out of my pocket to give to the ultra-wealthy and corporations.

There's a little cognitive dissonance here. You make about $1 million a year. You ARE the ultra-wealthy.

http://www.globalrichlist.com/

[NoStacheOhio]

Well... everyone who makes an income gets taxed. Some people get reductions/exemptions from the tax based on certain variables, including the amount of income they make, but all labor/income is taxed (unless you are getting paid 'under the counter').

False. 45% of Americans pay $0 in income tax. If you pay $0 income tax, you made an income that was not taxed. Period.

Most people get paid on a W-2, so they still pay FICA regardless of their federal income tax rate. They also pay state and local taxes, sales tax, property tax, DMV taxes, etc.

[sokoloff]

I am single, no kids, live in NY, very high property taxes, and I make high 6 figures/low 7 figures (my income is variable because I'm self-employed). I am a consultant so no special treatment for my pass through.

Yeah I can afford it. If it were being used to give the middle middle class a meaningful tax break, or to pay for health care or infrastructure or educational initiatives I'd be fine with that. But I don't like money siphoned out of my pocket to give to the ultra-wealthy and corporations.

There's a little cognitive dissonance here. You make about $1 million a year. You ARE the ultra-wealthy.

High income doesn't necessarily mean ultra-wealthy.

Wealth is about assets; high income that stops if you stop working isn't nearly the same thing.

[rantk81]

I haven't read all the details about the tax plan, but on the surface, it seems like a big gift to any "FIRE"-early-retiree in a LCOL area.... Back-of-the-napkin calculations seem to indicate almost no tax burden for some folks who have a smallish/modest amount of investment income to cover reasonable LCOL living expenses.

[sherr]

Today the national debt is at a frightening level and will exponentially increase.

The math for paying it off does not work. Maybe 10 years and a trillion dollars or so ago we would've had a chance to do something meaningful about it, except, well, Iraq War and great recession. This debt will never be paid off and it will eventually have to be settled by devaluation of the currency or the sale of hard assets.

Or we can try to grow economically, and buy ourselves time, and possibly reorganize and reprioritize.

This Republican tax plan should be viewed as more than a tax plan, it's also a geopolitical power maneuver to keep us relevant and check the influence of competitors. Similar to "Star Wars."

This is complete nonsense. In order for "growing economically" to "buy us time" before the debt day-of-reckoning, the tax plan would have to reduce the deficit. Even given Republicans most optimistic (to put it charitably) assumptions about how much this will grow the economy, this plan increases the deficit in a time of relative prosperity. Never mind what it'll do in the next economic downturn. This can only possibly make the crisis bigger and sooner.

Sure the corporations may be sitting pretty thanks to their next-to-non-existent (since the bill leaves all their loopholes their tax rate will be in the teens or possibly single-digits) tax rate - and have plenty of money to relocate to wherever they want - but the country will be in ruins.

[farfromfire]

I am single, no kids, live in NY, very high property taxes, and I make high 6 figures/low 7 figures (my income is variable because I'm self-employed). I am a consultant so no special treatment for my pass through.

Yeah I can afford it. If it were being used to give the middle middle class a meaningful tax break, or to pay for health care or infrastructure or educational initiatives I'd be fine with that. But I don't like money siphoned out of my pocket to give to the ultra-wealthy and corporations.

There's a little cognitive dissonance here. You make about $1 million a year. You ARE the ultra-wealthy.

High income doesn't necessarily mean ultra-wealthy.

Wealth is about assets; high income that stops if you stop working isn't nearly the same thing.

Once a single year's income makes you wealthy (and you've had that income for the better part of a decade), I don't see how you can possibly be not wealthy. Many here would retire after 1-2 years of his income, complaining that an extra 1‰ of his income his going to the ultra wealthy is the height of cognitive dissonance.

[SaucyAussie]

The child tax credit is temporary by definition, unless you are raising Peter Pan.

There is a sweet spot in the new laws for higher middle class incomes - those that did not receive any credit before, could now be receiving the full increased credit.  So a family with three kids could be $6,000 better off before even taking into account the shift in brackets (senate plan is 2K per child).

Having actually run the numbers (not using an online calculator), I come out about 3K better off under the House plan, and about 3.3K better off under Senate plan.  This is despite losing my itemized deductions, only having 1 child, and getting screwed on the HOH bracket shift (which NOBODY is talking about). 

Larger families that don't itemize will do even better.  To me, this is a significant tax break to the middle class.

Tip: make sure you pay your Jan mortgage payment before Dec 31 to increase your deduction for 2017, as it may not be deductible in 2018.

[Dancin'Dog]

Did they change the capital gains exclusion timeframe from the 2of5 years to 5of8 years?  I was mentioned earlier, but I haven't seen any mention of it since the vote.

Also, I noticed that the Estate tax wasn't repealed, but the amount for exclusion was doubled.  Seems like a reasonable compromise to me.