Taxes time 2018 - what to expect ?

[pb4uski]

Yes, that feature has been around for years. Last time I looked during the spring it did not take into account 2018 tax law changes.

There is a check box just above the filing status to use 2018 tax rates... has been there since the spring.

 

[gerntz]

Definitely more here. Had $42K in itemized deductions last year. After being limited to $10K for SALT, elimination of interest on the first $100K of a second mortgage, and a few other things, we can muster maybe $24K in deductions. Will have to go with standard deduction for 2 seniors. Plus we both had RMDs this year, so we can see where this is heading. No way to reduce taxable income = more taxes.

Have yet to figure out/understand how one's SALT should affect one's Fed tax obligations. SALT is a choice.

 

[lucky penny]

I'm also in a high SALT state (NY) & expect to pay more. My taxes took a big jump last year because my income did too (not complaining), especially with RMDs and Social Security. I had too little withholding for both -- just 10%, which turned out to be not nearly enough, so the bottom line was an unpleasant surprise. I increased the withholding this year, but I expect the cap on the SALT deduction will cost me.

On the other hand, starting next year the largest source of my income will be my state pension (not my salary), which is not subject to state and local taxes, so next year's bottom line should look quite different. Another reason to look forward to retirement!

 

[Helena]

Was there an aspect of "tax-deferred" retirement savings that you forgot about? Was it ever represented that it would be tax-free? Were you unaware of RMDs until recently? What was your marginal tax rate when you saved he money that is now subject to RMDs? What is your marginal tax rate now?

Sounds like a first-world problem to me.

Your post reads very familiar. Appears to be the very same post you responded to me on a previous 'RMD tax' post weeks ago. Obviously, you have an unusual 'pro-RMD tax' ax to grind on that subject.

.

 

[Just_Steve]

I'm also in a high SALT state (NY) & expect to pay more. My taxes took a big jump last year because my income did too (not complaining), especially with RMDs and Social Security. I had too little withholding for both -- just 10%, which turned out to be not nearly enough, so the bottom line was an unpleasant surprise. I increased the withholding this year, but I expect the cap on the SALT deduction will cost me.

On the other hand, starting next year the largest source of my income will be my state pension (not my salary), which is not subject to state and local taxes, so next year's bottom line should look quite different. Another reason to look forward to retirement!

Thats only because NY is slick and taxed you on your pension contributions at the higher rate while you were working.

 

[pb4uski]

Your post reads very familiar. Appears to be the very same post you responded to me on a previous 'RMD tax' post weeks ago. Obviously, you have an unusual 'pro-RMD tax' ax to grind on that subject.

.

Ah, so you're another one of those folks who misunderstood that tax-deferred didn't mean tax-free eh?

I went back and looked.... it was a good guess.

http://www.early-retirement.org/forums/f28/eo-to-raise-rmd-age-93571-4.html#post2102337

 

[Helena]

Ah, so you're another one of those folks who misunderstood that tax-deferred didn't mean tax-free eh?

I went back and looked.... it was a good guess.

http://www.early-retirement.org/forums/f28/eo-to-raise-rmd-age-93571-4.html#post2102337

I am one of many seniors who hate being F0RCED by draconian RMD laws to take out more tax-deferred money every year than I need or want which not only raises my RMD taxes, but also causes my Social Security to be taxed. Thank God there are at least some lawmakers who are now taking a second look at that abomination.

.

 

[MarieIG]

I still don't know what the tax hit is going to be this year. I anticipate that it will be more. We paid approximately 61k in SALT last year, and will be taking the standard deduction this year, but should no longer be subject to the AMT. I had more $ with held from our paychecks (again), continue to take zero deductions, and am paying extra estimated taxes.

 

[pb4uski]

I am one of many seniors who hate being F0RCED by draconian RMD laws to take out more tax-deferred money every year than I need or want which not only raises my RMD taxes, but also causes my Social Security to be taxed. Thank God there are at least some lawmakers who are now taking a second look at that abomination.

.

Hold on. RMDs have been required forever so it should not have come as a surprise... if you objected to ultimately paying tax on that income through RMDs then perhaps you should have never deferred it to begin with.

Similar story on SS... that has been taxed for a long time.... and only a portion of your Social Security is taxed... roughly the same portion that exceeds what you contributed... no different than paying tax on benefits in excess of contributons of any other contributory pension plan.

Put it all together and it is obvious that you just don't like taxes... sounds like you expect a free ride in retirement... sorry, but it just doesn't work that way... never has.

 

[DrRoy]

I suspect we'll be paying less but haven't done any math on it yet.

+1. We haven't had enough to itemize for a couple years so the increase in the standard deduction will help. This will be my first full year of RE so the income will have hit a bit of a lower plateau. I expect to do some recharacterization of the regular IRA to Roth within the 12% bracket.

 

[target2019]

I went with higher 401k contribution after using the whatif calculator in TurboTax last April. So I'm expecting to be very close on Federal taxes.

 

[pj.mask]

Hold on. RMDs have been required forever so it should not have come as a surprise... if you objected to ultimately paying tax on that income through RMDs then perhaps you should have never deferred it to begin with.

.....

Put it all together and it is obvious that you just don't like taxes... sounds like you expect a free ride in retirement... sorry, but it just doesn't work that way... never has.

It does sound like you’re trying to pick a fight.

I didn’t read their post the same way. It sounded like they had high deductions SALT - and was using that to manage his fed taxes. I don’t think it is unreasonable to complain about changes to tax law that specifically targets you based on your state. (This was pretty clear during the creation of the law)

I also want to thank him; those high SALT tax states subsidize the low SALT states (he pays more tax and that tax money gets redistributed).

Personally, we will probably save a few %. Any difference would be less than raises so haven’t been able to pull out the numbers.

 

[pb4uski]

I think you are mixing up my posts. The post that you quoted was responding to Helene's incessant whining about about being FORCED by drakonian rules to take out RMDs. (rules that have been around forever and she should have known about).

In my response to beowulf's post on SALT and RMDs, I was responding more to the last two sentences, where he seemed to be mad that RMDs were increasing his taxes, I was not responding to the SALT part. In retrospect, perhaps I should have clipped the earlier part of his post that I quoted, as like you, I can understand folks that are upset with the SALT changes.

Where I would not agree with you is that I don't think people use SALT to manage their taxes... who would move into a high tax jurisdiction just because of the federal tax benefits? That and I don't see SALT being redistributed at all, the money is spent in those local and state jurisdictions so I don't see how people in low SALT areas benefit from SALT paid by people in high SALT areas (and I live in what is commonly considered a high SALT area).

..... Plus we both had RMDs this year, so we can see where this is heading. No way to reduce taxable income = more taxes.

 

[Fedup]

Upset about taxes, no, I’ve learned to make lemonade out of lemons. I converted to top 22%, much higher limits than years before. Originally I only planned to convert to the old 15% rate.

 

[lucky penny]

Thats only because NY is slick and taxed you on your pension contributions at the higher rate while you were working.

True enough. On the bright side, I was pleasantly surprised to learn that NY does not tax Social Security income, unlike some states.

 

[pb4uski]

Thats only because NY is slick and taxed you on your pension contributions at the higher rate while you were working.

Can you elaborate? Wouldn't earnings that are contributed be taxed at the same rate as earnings that are not contributed? Or are you assuming that their state tax rate while working is higher than their state tax rate in retirement.

Also, to be clear, you only get taxed on pension payments in excess of contributions... you don't get taxed on the "return of principal' part.

 

[pj.mask]

....FORCED by drakonian rules to take out RMDs. (rules that have been around forever and she should have known about).

In my response to beowulf's post on SALT and RMDs, I was responding more to the last two sentences, where he seemed to be mad that RMDs were increasing his taxes, I was not responding to the SALT part....

Where I would not agree with you is that I don't think people use SALT to manage their taxes... who would move into a high tax jurisdiction just because of the federal tax benefits? That and I don't see SALT being redistributed at all, the money is spent in those local and state jurisdictions so I don't see how people in low SALT areas benefit from SALT paid by people in high SALT areas (and I live in what is commonly considered a high SALT area).

High SALT states tend to fund more of their programs with state tax. As a result of those programs, they rely less on federal government to fund programs. States without high SALT then take federal dollars (paid by people in all states, including high SALT) to cover similar (but often less robust) programs. There are lots of articles on this. This is the first article that came up in discussion.
https://www.apnews.com/2f83c72de1bd440d92cdbc0d3b6bc08c

RMDs, while forced, could have been planned to be offset with SALT deductions. ‘Sure I have 100k RMD but after 70k SALT deduction the fed tax bite isn’t so bad on 30k.’ This leaves with with 30k cash to spend. Now they are paying 70k salt plus income tax on 100k so they end up with $10k to spend. (I’m sure there are other income sources, etc, but income is reduced)

 

[pb4uski]

The link you provided has nothing at all with the argument that you make... it mainly says that a lot of blue states pay more in federal income tax than they receive in federal benefits... that is not any news... but what I said was that state and local taxes were used to fund state and local programs so people in low SALT areas don't benefit from state and local taxes paid in high SALT areas.

I went back to one of my high income years while working and my SALT deduction, including property taxes for two homes was only $22k... IMO if your SALT is $40-70k you're living pretty high on the hog and are unlikely to get much sympathy.

While I live in a relatively high SALT state, it is not as near as high as the NY metro area.

Below is a good graphic of federal taxes paid vs benefits received. It robably has been relatively consistent from one year to another but does change a bit over time.

 

[dtbach]

I figure my taxes may be slightly less. Not nearly the deal MegaCorp's got.

 

[Gotadimple]

I expect to pay a bit more but not a lot. I'm impacted by the limit on SALT, reducing my itemized deductions to generally close to the new standard deduction.



So depending on the amount of aged deduction (over 65) added to the standard, I may/may not itemize this year. Next year, I expect to only take the standard as mortgage interest payments continue to decrease.

 

[Souschef]

Since I retired, my IRA's have more than doubled. While I hate to pay taxes as much as the next person, I gladly pay the 5% RMD, which is by no means draconian.
In fact, my balance has been increasing even after I have taken out the RMD.
I donate to charities, which cuts down on the taxable amount. Next year I am going to start Roth conversions on part of my IRA.

 

[wolf]

We will be paying more even for the same income as last year, we’re in California. But I’m still waiting to see if CA still allows those deductions even if Federal only allows up to $10k. The two systems don’t always aligned.

Have same concern. I'm a DIY. Hate the additional work, and record "keeping", when California tax rules and the Federal rules are different.

 

[pj.mask]

The link you provided has nothing at all with the argument that you make... it mainly says that a lot of blue states pay more in federal income tax than they receive in federal benefits... that is not any news... but what I said was that state and local taxes were used to fund state and local programs so people in low SALT areas don't benefit from state and local taxes paid in high SALT areas.

I went back to one of my high income years while working and my SALT deduction, including property taxes for two homes was only $22k... IMO if your SALT is $40-70k you're living pretty high on the hog and are unlikely to get much sympathy.

While I live in a relatively high SALT state, it is not as near as high as the NY metro area.

Below is a good graphic of federal taxes paid vs benefits received. It robably has been relatively consistent from one year to another but does change a bit over time.

You can do your own research: I said this was simply the first link to paint a general trend. You could see that in 2012 Florida spent $8929 per child and CA spent $9929. Of that money the federal gov spent $1310 per kid in CA and $1132 per kid in FL. (About 14% less funding per student from the fed)

https://nces.ed.gov/pubs2014/2014303.pdf

Since ~1/3 of the state taxes go to public schools.

http://www.latimes.com/politics/la-pol-sac-california-budget-details-20170615-htmlstory.html

It only seems obvious to me that the state funding replaces the lack of federal funding. I.e. California state taxes pay for their schools and California federal taxes pay for their schools and the schools of other states who get more money per student.

Florida is a simple example but it isn’t anywhere near the bottom of the list. This is what I consider subsidizing.


As to the ‘we shouldn’t feel bad for people who earn money and get shafted by a policy change’ I don’t see how anyone’s net worth should impact a decision on what is fair.

They made a retirement plan on fixed income and the state tax in what appeared to be (and several comments corroborating) politically motivated (democrat voting states generally have higher SALT) move, the tax law changes to their negative benefit.

I live in a no income tax state and we live well below our means in terms of property tax. I am benefitting from this tax proposal but I don’t agree that we should financially hurt residents of states that are trying to improve the quality of life (education, health care, etc) as a game of tit-for-tat

 

[Helena]

Hold on. RMDs have been required forever so it should not have come as a surprise... if you objected to ultimately paying tax on that income through RMDs then perhaps you should have never deferred it to begin with.

Similar story on SS... that has been taxed for a long time.... and only a portion of your Social Security is taxed... roughly the same portion that exceeds what you contributed... no different than paying tax on benefits in excess of contributons of any other contributory pension plan.

Put it all together and it is obvious that you just don't like taxes... sounds like you expect a free ride in retirement... sorry, but it just doesn't work that way... never has.

Social Security was tax-free for decades before the first law was passed in the 1980s to TAX SS.

That is what lawmakers do... they continue to pass new laws that affect us positively or negatively.

Today, some lawmakers are considering changing the current RMD laws. Hopefully, RMD rules will be changed for seniors' benefit.

The current taxing of SS is not written in stone either... and hopefully that law also might change in the future for seniors' benefit.

For some bizarre reason you don't like the idea that lawmakers may change laws to help seniors.


.

 

[Fedup]

Have same concern. I'm a DIY. Hate the additional work, and record "keeping", when California tax rules and the Federal rules are different.

I haven’t found anything credible. Except the part where they create a part III for job expenses and miscellaneous deductions.