Details of Proposed Tax Plan

[alevin]

FWM it means the payor includes the alimony in their taxable income. not deductible for them. The receiver does not have to pay taxes on the alimony payments. And yes, you sir are safe (think dancing with the starz "safe" :cheesy, since your situation reached resolution prior to 2018.

and yes, it does mean that someone may have to pay more in terms of salary or benefits if they really want a current or prospective employee to relocate to new location further than 50 miles from that persons current location. Especially since one of the other provisions removes the deduction for moving expenses for relocation further than 50 miles for new job. That one could impact me, as I expect to relocate post-retirement before starting any small biz, or becoming employee for anyone else (I do have an offer waiting for me when the time is ripe).

fortunately the 5 of 8 year rule for home sale will have no impact on me, but if I work for someone else post-retirement (possibility exists-with housing provided as part of the package, but I'd give it no more than a couple years before focusing 100 percent on my other plans)-would likely require an additional move elsewhere yet again in 2 years time.

 

[FireWeatherMet]

FWM it means the payor includes the alimony in their taxable income. not deductible for them. The receiver does not have to pay taxes on the alimony payments. And yes, you sir are safe (think dancing with the starz "safe" :cheesy, since your situation reached resolution prior to 2018.

and yes, it does mean that someone may have to pay more in terms of salary or benefits if they really want a current or prospective employee to relocate to new location further than 50 miles from that persons current location. Especially since one of the other provisions removes the deduction for moving expenses for relocation further than 50 miles for new job. That one could impact me, as I expect to relocate post-retirement before starting any small biz, or becoming employee for anyone else (I do have an offer waiting for me when the time is ripe).

fortunately the 5 of 8 year rule for home sale will have no impact on me, but if I work for someone else post-retirement (possibility exists-with housing provided as part of the package, but I'd give it no more than a couple years before focusing 100 percent on my other plans)-would likely require an additional move elsewhere yet again in 2 years time.

I didn't realize the trimming of Capital Gains for homeowners needing to live 5 years in a home instead of just 2.
My first 2 starter homes owned were for 3 years and 4 years respectively, and allowed me to quickly build wealth to get a top notch home.

This one hurts the average person trying to move up the socio-economic ladder...creating an even bigger buffer with the super elite who no longer have to deal with the "Estate Tax".
Also hurts the housing industry bigtime.

Between companies having an even tougher time finding workers, peoples progression from starter home to dream home and wealth slowed by many years...to the hit on the entire housing industry...it all seems to spell one thing: R-E-C-E-S-S-I-O-N

 

[ripper]

I'm a bit confused on this.

My understanding is that personal exemptions - where we were able to deduct $4,050/person - would be eliminated under the new tax plan.

Is that correct?

 

[Jackbnimble]

I'm a bit confused on this.

My understanding is that personal exemptions - where we were able to deduct $4,050/person - would be eliminated under the new tax plan.

Is that correct?

That is what I have read. They replace it with a credit for children (1,600) and one for non-children (300). Not clear on phase outs.


Sent from my iPhone using TSP Talk Forums

 

[uscfanhawaii]

Update: I ran the math wrong earlier-I would owe approximately 2K more next year in fed tax, not 1500 less. Maybe I'll bump up my charitable contributions even further next year, at least I'll know where the money is going. and pay a little less in fed tax. makes it harder to save for business startup in a couple years, even if I can do full deduct for expenses in a given year. Got to fork out the funds for the expenses first before can deduct them.

Sorry, Charitable Gifts are no longer deductible!!

 

[Boghie]

Folks,

There may be simplification in the tax code, but there can really be no tax cut. We ensured that over the past eight years - maybe longer. Our debt grew from $9T to $20T over the last eight years. The interest rate is going up now. Time to pay the piper.

By the way, the corporate tax is a sham. While a tax rate of 36% is a joke no corporation pays that. They have write-offs. The tax attorneys get the difference. A simple and fair 20% will probably result in less aggressive tax management and a higher level of compliance. That in itself may result in more tax income. At least businesses will know what their tax burden is.

Regardless, the numbers on our debt repayment no longer work. We have to pay... All those goodies are not free and the Chinese and the oldsters with bonds want their mullah... And, they should get it. A promise made is a promise kept. All we can really hope for is simplification - and, this bill may move us toward that.

 

[Boghie]

Sorry, Charitable Gifts are no longer deductible!!

Charitable gifts are deductible if you itemize.

The only real difference is that fewer people will itemize because the standard deduction will be higher than the itemized deductions. That will be my situation. It is actually already my situation. I still donate to charities even though I get no deduction from it.

 

[ripper]

That is what I have read. They replace it with a credit for children (1,600) and one for non-children (300). Not clear on phase outs.


Sent from my iPhone using TSP Talk Forums

Thanks. It's a bit misleading when they tout doubling the standard deduction without mentioning eliminating personal exemptions. Also sounds like there will no longer be an extra exemption for those 65 and older. Simpler doesn't necessarily mean fairer.

Trump tax plan: 'Doubled standard deduction' is misleading - Business Insider

 

[alevin]

Good point Boghie. Yes charitable contribs will still be allowed up to 60% AGI, previously it was up to 50% AGI. 5yr carryover in excess of the limit still applies. doubt many of us are able to ever have contributed 50% of our AGI to charity, much less 60% or more. And oops, you're correct that they are part of the itemized package. I've been itemizing for a number of years, part of the package was donations, along with prop tax and state income tax. not much else in the mix since I paid off the mortgage.

The new std deduction is higher than what I was ever able to itemize, so won't be itemizing any more,but I'll still donate to charities at least at the level I have been, regardless.

 

[burrocrat]

money never sleeps.

 

[Boghie]

I'm a bit confused on this.

My understanding is that personal exemptions - where we were able to deduct $4,050/person - would be eliminated under the new tax plan.

Is that correct?

I've moved cross county and one of the things that did not completely move with me was my computer - so this is a new one without all the bells and whistled installed. A few months ago I would have just worked the numbers in Turbo Tax and provided solid estimates. Oh well...

One thing to remember is that the Standard Deduction almost doubles. And the child credit goes up substantially as well. The standard deduction increase is basically the equivalent of three personal exemptions (a little less than three actually). So, to lose on that based on personal exemptions means that you have more than three dependents living with you excluding you and the spouse.

Here is a good article on the plan.

Of special note is the major changes in the middle class tax brackets (Married filing Jointly):



In effect, you will be in a 12% tax bracket till your AGI is $114K (since you get to dump $24K as a Standard Deduction). That is not a bad deal. You were previously dumped into the 25% bracket once your AGI exceeded $88K (since you dump $12K for the Standard Deduction). That will save many middle class folks a lot of money. Also, remember that $1,000 in home interest payments only nets you $250 in deductions. So, if you pay $12,000 in home interest than you get (and still can if it is better to use itemized deductions) a $3,000 deduction in taxes paid. Remember, your Standard Deduction is about $12,000 higher now.

Finally, you do not get a 28% tax bracket. That will result is less tax for the upper middle class.

The highest brackets look like a wash.

The devil is in the details though. At the very least it is less complicated.

 

[Boghie]

Folks,

If you are middle class or poor - even with a house - it will be hard to lose money with this new tax plan. As an experiment I used DinkyTowns 1040 tax planner.

Assumptions:

• Married filing Jointly
• Gross Income: $126K
• Student Loan Interest: $5K (You can currently deduct only $2,500 for student loan interest)
• Itemized Deductions (House, Charity, State taxes): $16K
• 401(k): Nothing (I used this to increase Standard Deduction, but if used would result in better projected tax)
• Current Federal Tax: $16,500
• Projected Federal Tax (even including 2016 tax brackets): $14,900

Thus, you will probably save about $2,000 to $2,500 in tax money under the new plan.

 

[evilanne]

I used Turbo Tax from last year to estimate taxes for 2017. Then I took the AGI and calculated with proposed rates, which came out about $600 less in taxes plus a few hundred more if capital gains/dividend are taxed at 15% instead of 25% marginal rate. It looks like new proposal will not be effective until 2018 so it looks like I will be itemizing this year. I just hope they get something done sooner rather than later so I can plan accordingly.

 

[tsptalk]

If you are middle class or poor - even with a house - it will be hard to lose money with this new tax plan. As an experiment I used DinkyTowns 1040 tax planner.

Assumptions:

• Married filing Jointly
• Gross Income: $126K
• Student Loan Interest: $5K (You can currently deduct only $2,500 for student loan interest)
• Itemized Deductions (House, Charity, State taxes): $16K
• 401(k): Nothing (I used this to increase Standard Deduction, but if used would result in better projected tax)
• Current Federal Tax: $16,500
• Projected Federal Tax (even including 2016 tax brackets): $14,900

Thus, you will probably save about $2,000 to $2,500 in tax money under the new plan.

I’m just a middle class worker with a small home and fairly simple taxes. I claim the personal exemption, and itemize to deduct a small amount of mortgage interest, property taxes, and state income taxes. Now I won’t be able to claim the personal exemption, nor will I be able to claim state income taxes. I calculate that my taxes will go up by between three and four thousand dollars a year... I thought this was supposed to cut middle class taxes?

I know it's not feasible to post our personal information here, but based on Boghie's post, I'm curious how someone like StockSurfer would see his taxes go up significantly as stated earlier (see quote above).

I can see why in FWM's case because he is assuming he will now have to pay taxes on nearly $50,000 worth of income that he would have been able to deduct before, but which I assume most people would not have [all of them] on their form Schedule A. I didn't have any of those deductions, of the ones he listed, on my return so this is why it would be difficult, if not downright impossible, for any tax plan to make everyone happy.


By the way... I really appreciate that everyone has kept this discussion civil and to the point about tax policy, and not politics.

Please use this thread to discuss the tax plan, not ideological differences, if that's possible. :hitwithrock:

 

[evilanne]

Thanks. It's a bit misleading when they tout doubling the standard deduction without mentioning eliminating personal exemptions. Also sounds like there will no longer be an extra exemption for those 65 and older. Simpler doesn't necessarily mean fairer.

Trump tax plan: 'Doubled standard deduction' is misleading - Business Insider

I don't see anything that eliminates the over 65 deduction in the proposed legislation. I was wondering the same thing because I do my mother's taxes. If you look at IRC 26 U.S. Code § 63 - Taxable income defined Paragraph (f) Aged or blind additional amounts should still apply. It was implemented in 1988 @ $600 and has escalated over the years to $1,550 in 2016 based on paragraph (4) Adjustments for inflation

 

[uscfanhawaii]

Charitable gifts are deductible if you itemize.

The only real difference is that fewer people will itemize because the standard deduction will be higher than the itemized deductions. That will be my situation. It is actually already my situation. I still donate to charities even though I get no deduction from it.

Yes, sorry....I think I was reading the earlier ‘framework’ summary. The charitable deduction survived the final detailed description.
of course, Boghie’s comment also affects it.

 

[alevin]

Figured out the glitch in my earlier figurings. was comparing difference in tax between standard deduct vs. what would be allowed itemized (for me) next year combined with losing the exemption. tax brackets calculated as per the new rules. new standard deduction would save me a lot more for sure compared to itemizing under new rules.

However if I compare what taxes would be under current status quo, with my normal itemized items and amounts, single exemption, and current tax brackets, vs what taxes would be under standard deduction, new tax brackets and no exemption. It comes out much closer to even steven. I'd have some extra cash back in my pocket, enough to be meaningful.

 

[nasa1974]

I'm not opposed to getting more money back in tax refunds, but how will this reduce the deficit?

 

[alevin]

I'm not opposed to getting more money back in tax refunds, but how will this reduce the deficit?

I for one am skeptical that it will. Boghie nails it first time, every time when he brings up the national debt. imo, strictly imo.

 

[StockSurfer]

I know it's not feasible to post our personal information here, but based on Boghie's post, I'm curious how someone like StockSurfer would see his taxes go up significantly as stated earlier (see quote above).

I can see why in FWM's case because he is assuming he will now have to pay taxes on nearly $50,000 worth of income that he would have been able to deduct before, but which I assume most people would not have [all of them] on their form Schedule A. I didn't have any of those deductions, of the ones he listed, on my return so this is why it would be difficult, if not downright impossible, for any tax plan to make everyone happy.


By the way... I really appreciate that everyone has kept this discussion civil and to the point about tax policy, and not politics.

Here’s the math using figures paralell to my situation - Single Homeowner who itemizes mortgage interest, property taxes and State Taxes... Bottom line, a tax Increase of $1525.00/yr

2016, old code rules:
Gross Income 109g
Minus 25 g Itemized Deduction (State Income Taxes $7500 + RETaxes $6500 + Mortgage Interest $11,000)
Minus 4 g personal exemption
Taxable Income = 80 G
Taxes (old code formula) (Single) $15,500

2016 new code rules:
Gross Income 109g
Minus 17,500 Itemized Deduction ( RE Taxes $6500 + Mortgage Interest $11,000) (State Income Taxes of $7500 not deductible)
(4 g personal exemption not available)
Taxable Income = 91,500.
Taxes (New Formula) Single $17,025. ((45 g x 12%) Plus (46,500x 25 %)) = ($5400. + $11,625)
Tax Increase $1525.00