2017 year end tax planning

[bobandsherry]

Nothing really for me to do. Change in tax brackets not a concern for my planning as I'm driven around MAGI ACA limits for subsidy. Already tracking and forecasting my income (interest, dividends, capital gains, 401K w/d) which is reported in Quicken. I've also estimated my deductions.

If any changes to deductions takes place I'll update my deduction estimates accordingly, bunch those into this year (such as additional mortgage payment, charitable contributions, RE taxes) in this year and tweak my EOY LTCG (sell / buyback to harvest at 0%) and 401K w/d accordingly to still maximize MAGI for ACA subsidy limit. However I'd put the chance of any change to this year's taxes at <1% probability.

 

[audreyh1]

Oh, I forgot the proposal that personal exemptions go away. Then doubling the standard deduction does nothing extra.

Boy that does hit households with more than two people!

 

[audreyh1]

I'm adding a +3 to the skeptics. The proposals appear geared almost surgically to polarize the Hill and even split the authors' party to some degree. Anything that stands a chance to be passed will undoubtedly be substantially changed from the current proposals.

There is a lot for people to scream bloody murder about.

 

[jebmke]

Oh, I forgot the proposal that personal exemptions go away. Then doubling the standard deduction does nothing extra.

Boy that does hit households with more than two people!

I think the intent is to have some child/dependent credits to offset this but the "blueprint" is so vague it just goes to show that there really is no way to plan around it at this stage. Nine months have produced nine pages. At this rate, it will go to the floor in 2050 I figure.

 

[MichaelB]

This is a thread about tax planning. It would be a good idea to keep the politics out of the discussion.

 

[pb4uski]

I'm planning assuming no change... based on current tax code. Luckily, any manuvers would be done near year end so we'll presumably know by then what rules we are operating under and I'll make changes if necessary.

 

[rodi]

I don't consider the "talking points" being discussed... No bill has come out of committee yet and there are two very different legislative chambers that will have to agree. I won't worry/plan for any tax cuts/changes/reforms until it is much farther along in the process.

For now I consider MAGI for ACA purposes and, like SecondCor521, I am in the FAFSA EFC window for my junior in high school.... That's more significant, financially. We meet with a consultant (free) on how to plan for your FAFSA EFC in 2 weeks... I suspect I'll be told to stop doing Roth conversions for the next several years to reduce my taxable income even more.

I'm not earning w2 income - but we have rental income, RMDs from a beneficiary IRA, DHs SS, and small (tiny really) pensions. Those are factors I can't control - so roth conversions is the only lever I have to reduce FAFSA EFC.

 

[sengsational]

We meet with a consultant (free) on how to plan for your FAFSA EFC in 2 weeks... I suspect I'll be told to stop doing Roth conversions for the next several years to reduce my taxable income even more.

You probably will be enlightened to the fact that the assets that go into the EFC formula do not include retirement assets, and oh, by the way, I can sell you an insurance product (probably a variable annuity) that's considered a retirement asset. Of course you know to run the other way from that product. If you're convinced that getting discounts (grants and scholarships) will happen, you could fund a low cost variable annuity from Vanguard, Fidelity, etc. Those can be had for just 0.3% over the underlying fund's fees. But when you withdraw, you don't get the tax advantage of capital gains, and unless you annuitize, your gains must come out before your principle.

 

[SecondCor521]

Today, a single taxpayer has $4,050 exemption + $6,300 std deduction (Single, under 65). That totals $12,350. Increasing the deduction to $12,000 actually is more or less breakeven

Does it? My eyeball math says $10,350.

 

[GrayHare]

To play the odds I figure to bunch into 2017 the deductions that may go away in 2018. That means shift as much state and local tax into 2017 as practical. The same can be done with non-time-critical medical expenses. Conversely, deductions that sound likely to survive beyond 2017, such as contributions and mortgage interest, I plan to delay into 2018. This approach works regardless of whether tax reform happens or not.

 

[bobandsherry]

^^ If tax rates will be decreased with the Tax Reform proposed, wouldn't it be advantageous to bunch your contributions and mortgage interest into this year?

 

[GrayHare]

That seems more uncertain, at least I've not seen ideas as to the dollar ranges of the possible new brackets.

 

[rodi]

Folks - keep in mind.... the stuff being talked about by the talking heads on tv is NOT actual legislation.... If and when something comes out of committee... then we might be able to discuss it.

I worked in software for 3 decades... tax reform is still in the state we called "vapor-ware"!!!

 

[bobandsherry]

That seems more uncertain, at least I've not seen ideas as to the dollar ranges of the possible new brackets.

Yeah, nothing on the $ ranges of new brackets, but at face value it's supposed to reduce individual tax rates, also touted as being a tax reduction for middle class. Mortgage interest, while not fully eliminated from deduction, may be some watered down deduction.

I have my doubts on if anything gets accomplished, but as they say a bird in the hand.... or rather a dollar in the hand in this case...

 

[jebmke]

Does it? My eyeball math says $10,350.

Ah, thanks. Fat fingered my total. Main point is that "doubled" is marketing right now. Doesn't really matter. Tax reform is a long process. last one took over two years. I'm not changing any of my pro-forma tax returns.

 

[jebmke]

Folks - keep in mind.... the stuff being talked about by the talking heads on tv is NOT actual legislation.... If and when something comes out of committee... then we might be able to discuss it.

I worked in software for 3 decades... tax reform is still in the state we called "vapor-ware"!!!

Yes, last time it took over two years. A colleague of mine worked on it for almost the whole time. I worked on small section related to Puerto Rico (it didn't get incorporated - only spent 4 months on it so it wasn't like I wasted my life).

 

[scrabbler1]

Wikipedia, FWIW, has a nice recap about the 1986 Tax Reform Act, which began as the 1985 Tax Reform Act. It was signed into law in late October of 1986, just before the mid-term election.

 

[Blueskies123]

There are other sorts of things, too. Those receiving ACA premium assistance may look for ways to manage their MAGI. I am now comfortably in the 15% bracket so come December I sell as many long term capital gains in my taxable account as I can, then immediately repurchase the shares as long as the gain doesn't pull me out of the 15% bracket. I pay 0% tax on those gains, so I am basically getting a free step up in cost basis. It's sort of the opposite of tax loss harvesting.

Do not forget that while LTCG may be federal tax free if you are in the 15 bracket, LTCG's do count toward MAGI for ACA credit calculation. The effect on ACA subsidy is roughly the same as a 15% income tax.

 

[scrabbler1]

Do not forget that while LTCG may be federal tax free if you are in the 15 bracket, LTCG's do count toward MAGI for ACA credit calculation. The effect on ACA subsidy is roughly the same as a 15% income tax.

The ACA subsidy is based on a few things. But from the sensitivity analysis I have done for my own subsidy, a increase of $100 in my MAGI will result in a decrease in my ACA subsidy of just under $10. This is based on the %-of-FPL which is just under 10% and that determines one's annual HC.

 

[bobandsherry]

Do not forget that while LTCG may be federal tax free if you are in the 15 bracket, LTCG's do count toward MAGI for ACA credit calculation. The effect on ACA subsidy is roughly the same as a 15% income tax.

Yup but can be even worse. Go just $1 over the ACA income cap and you lose all your subsidy, now that's a real expensive marginal rate to pay.

 

[pb4uski]

That is why it is useful to have some Roth conversions as part of your income.... if you do find that you are slightly over when finalizing your tax return you can recharacterize any excess and avoid that onerous, really expensive marginal tax.

 

[Curmudgeon]

The ACA subsidy is based on a few things. But from the sensitivity analysis I have done for my own subsidy, a increase of $100 in my MAGI will result in a decrease in my ACA subsidy of just under $10.

Good to see other people have done this! My sensitivity analysis shows that for me, an increase of $100 in MAGI results in a $17 loss in ACA subsidy - a 17% marginal 'tax' rate.

 

[meierlde]

Oh, I forgot the proposal that personal exemptions go away. Then doubling the standard deduction does nothing extra.

Boy that does hit households with more than two people!

Although not specified in amount there are indications that the child tax credit might increase, not the plan explictly says a 500 tax credit for non child dependents. For low income folks in the 12% potential bracket this could be worth the equivalent of an 8300 exemption, 25% 4000 and 35 % 2800 if your below the income phase outs for exemptions. Set it up for the two lower brackets and it becomes essentially a wash.

 

[audreyh1]

Although not specified in amount there are indications that the child tax credit might increase, not the plan explictly says a 500 tax credit for non child dependents. For low income folks in the 12% potential bracket this could be worth the equivalent of an 8300 exemption, 25% 4000 and 35 % 2800 if your below the income phase outs for exemptions. Set it up for the two lower brackets and it becomes essentially a wash.

Thanks. Of course it's impossible to see clearly yet.

 

[bobandsherry]

Good to see other people have done this! My sensitivity analysis shows that for me, an increase of $100 in MAGI results in a $17 loss in ACA subsidy - a 17% marginal 'tax' rate.

Marginal rate really depends on what your income is relative to the ACA income tax limits, type of income and deductions.

Using last years tax program, I calculated tax (net of ACA subsidy) slightly below the ACA limit (Married Filing Jointly). I then reduced income by $10K and there was no change in net tax including subsidy credit. Therefore marginal tax on that $10K was 0%.

I further reduced income by additional $10K ($20K total), tax benefit of $1,050, or marginally 10.5%.