Proposed tax plan

[MichaelB]

The numbers and situation skipro33 describes are typical for someone in an assisted living or nursing home.

 

[audreyh1]

I guess that I'm a bit perplexed. Three elderly women that I have handled finances for that have Medicare, Part D and Medigap pay next to nothing for medical expenses.... virtually everthing they incur is covered by Medicare or Medigap. So how can 100% of his income go to medical expenses?

If a single person had $6,000 in tax you'd have to have ~$60k of income and perhaps more since part of SS isn't taxed... that is a lot to go for medical expenses.

There must be more to this story.

Long term care expenses such as nursing home are not covered by Medicare after 90 days.

 

[pb4uski]

Got it... that makes sense now. As I understand in that situation once the person's financial resources are gone then Medicaid will take over so in the situation described it will just accelerate that happening depending on what resoues are available.

 

[43210]

One interesting feature of this tax proposal is what it means to realize income (e.g. Roth conversion, withdrawing from Trad, contributing to Trad vs Roth, realizing cap gains etc - i.e. situations where you can control what year income is realized so as to optimize) up to the top of the XXX bracket.

For MFJ, the 12% bracket goes up to $90k, but the 0% rate for LTCG and QDiv just goes up to about $77.2k, and then goes to 15% above that. A commenter on the Kitces blog points out that in the $77.2k--$90k range, it seems that LTCG get taxed at 15% while STCG get taxed at 12% !!

Also there'll still be the phenomenon (with new percentages) where if you go up to the top of the 0% LTCG bracket, and then consider the marginal effect of adding further ordinary income gets taxed at 27%=12%+15% (formerly 30%=15%+15%) since the extra ordinary income gets taxed at 12% (formerly 15%) as expected, but then that same amount of LTCG gets pushed from 0% to 15%, giving another 15% tax on that amount (until all LTCG are pushed into the higher bracket). The phenomenon is not new, but be aware that it happens at $77.2k, not $90k.

 

[pb4uski]

Good points. It would be nice if as this moves forward they align the 0%/15% capitaal gains tax rates with the proposed tax brackets in the interest of "simplification".

 

[43210]

Good points. It would be nice if as this moves forward they align the 0%/15% capitaal gains tax rates with the proposed tax brackets in the interest of "simplification".

Apparently some of the current features (bugs?) stem from having to "to make the budget math work" as Kitces said. They're trying to avoid the filibuster, so that puts a ceiling on certain numbers.

 

[audreyh1]

Good points. It would be nice if as this moves forward they align the 0%/15% capitaal gains tax rates with the proposed tax brackets in the interest of "simplification".

I don't expect it. They've deliberately chosen to separate them.

 

[audreyh1]

For MFJ, the 12% bracket goes up to $90k, but the 0% rate for LTCG and QDiv just goes up to about $72k, and then goes to 15% above that. A commenter on the Kitces blog points out that in the $72k--$90k range, it seems that LTCG get taxed at 15% while STCG get taxed at 12% !!

Yes, dropping the lowest ordinary income bracket to 12% and keeping cap gains tax at 15% has that effect. No big deal IMO. Would you rather pay 15% on the lowest tax bracket?

 

[43210]

Yes, dropping the lowest ordinary income bracket to 12% and keeping cap gains tax at 15% has that effect. No big deal IMO. Would you rather pay 15% on the lowest tax bracket?

I find it counterintuitive that STCG would be taxed at a lower rate than LTCG. It's not a feature one would expect, so it looks like an unintended glitch. It's interesting.

 

[audreyh1]

I find it counterintuitive that STCG would be taxed at a lower rate than LTCG. It's not a feature one would expect, so it looks like an unintended glitch. It's interesting.

Its simply the effect of the lowest ordinary income tax bracket being lowered to 12% versus 15%.

And you still get 0% on your long-term cap gains up to $77,200 income (actually more like just over $100k when taking into account the $24.4K standard deduction).

 

[JoeWras]

DAFs are not for everyone. But they can be very helpful, and I think will really help with the "stacking" of contributions that some of us may do if the standard deduction goes up. Heck, even with current law, stacking can be useful.

You can stack a few years contributions into one tax year and then dole them out to charities over a few years.

I can say as a treasurer of a 501(c)(3) charity, I appreciated loyal steady contributors who didn't throw bursts of contributions at us. Frankly, the board could get silly if we got big contributions. I'd rather see them come slow and steady. I could handle bursts, but the board -- like much of America -- seemed to want to spend it as soon as it came in. This made for bad management. I was only one vote.

Also, we were pretty small (under 50k), and didn't have a stock account. Although we *could* handle a stock contribution, it was a PITA. Checks from DAFs were a breeze.

 

[TrvlBug]

DAFs are not for everyone. But they can be very helpful, and I think will really help with the "stacking" of contributions that some of us may do if the standard deduction goes up. Heck, even with current law, stacking can be useful.

You can stack a few years contributions into one tax year and then dole them out to charities over a few years.

I can say as a treasurer of a 501(c)(3) charity, I appreciated loyal steady contributors who didn't throw bursts of contributions at us. Frankly, the board could get silly if we got big contributions. I'd rather see them come slow and steady. I could handle bursts, but the board -- like much of America -- seemed to want to spend it as soon as it came in. This made for bad management. I was only one vote.

Also, we were pretty small (under 50k), and didn't have a stock account. Although we *could* handle a stock contribution, it was a PITA. Checks from DAFs were a breeze.

One of the things we really liked about the DAFs is that we were unsure what our portfolio would do over the years and we assumed we would have to cut back in our retirement years or the years of market downturns. We didn't want to do that and have front loaded the DAF since inception and if we had to stop funding today, have about 7-8 years of distributions in the DAF.

 

[skipro33]

Got it... that makes sense now. As I understand in that situation once the person's financial resources are gone then Medicaid will take over so in the situation described it will just accelerate that happening depending on what resoues are available.

A bit of clarification about my dad's situation;
He's retired state worker in California. He has Kaiser Senior Advantage (Medicare HMO). He has a pension of about $3,000, SS of about $1200 and soon a VA pension of $1,800. He is 85 years old with Alzheimers. He's totally dependent and according to the tax accountant, 100% of his income is used for medical, so he pays no income taxes. All his monthly income just barely covers his full time care at a facility. He has almost zero savings of any kind, less than $10,000 anyways. (Long story short, a couple of his grand daughters bilked him out of his savings including the sale of his home when he had to go into the memory care assisted living facility). If his income is going to be subject to federal income tax, he won't have enough to cover the expenses for where he lives now. It's been hard enough on us all to even have to send him to any place, but to have to move him would just seem cruel as he can't/wouldn't understand. My brother and I will probably make up the difference if Dad even lives long enough to see any tax changes that affect medical deductions. But even if he doesn't live that long, it doesn't mean there aren't a boat-load of other seniors who are in the same situation; can afford to pay their own way with the tax write offs for medical but would need to make major changes if taxed.
One thing his tax accountant told me is that I can probably write him off as a dependent on my taxes if I do have to cover his overages. Yes, he files as a single adult, but I have durable power of atty for his medical and financial.
Thanks for the replies. I appreciate the feedback. Other than his memory issues, he has peripheral neuropathy, arthritis, high blood pressure, high cholesterol and is treated for mild depression. He has outlived his two wives, neither of which he can tell you their names. He forgets who my wife is and while he knows I'm his son, he does forget my name occasionally. It's hard to see him degenerate this way, but it adds insult to injury if his medical condition is no longer a tax write off. I sure hope our representatives reconsider those with advanced age or severe disabilities when they make their law.

 

[explanade]

House GOP quietly revised tax bill on Friday to increase taxes on individuals:

House Republicans on Friday quietly made changes to their far-reaching tax overhaul: Now its tax cuts would be less generous for many Americans.

A day after the GOP unveiled its plan promising middle-class relief, the House's top tax-writer, Rep. Kevin Brady, R-Texas, released a revised version of the bill that would impose a new, lower-inflation "chained CPI" adjustment for tax brackets immediately instead of in 2023. That means more income would be taxed at higher rates over time — and less generous tax cuts for individuals and families.

The change, posted on the website of the Ways and Means Committee, reduces the value of the tax cuts for ordinary Americans by $89 billion over 10 years compared with the legislation released with fanfare Thursday.

As wages rise, middle-class taxpayers would have more of their income taxed at the 25 percent rate instead of at 12 percent, for instance.

https://www.cbsnews.com/news/house-...bill-to-tax-income-at-higher-rates-over-time/

 

[SecondCor521]

^ If the $89B number is accurate, this reduces the size of the tax cuts from $1.5T to $1.4T. In percentage terms, that is approximately a 6%-7% reduction.

 

[Sunset]

The non-deductibility of medical costs is a blow to my future planning.
My thought had been while a nursing home is expensive, I could just yank out an extra $80,000 per year from the IRA and it would end up being largely tax neutral.

This in a backwards way makes long term care insurance plans slightly more attractive.

 

[43210]

^^ I don't see any problem with using "chained CPI". Maybe it's a better measurement. People should focus on what's fair, rather than what's better for themselves or whoever they're in the business of advocating for.

 

[explanade]

^^ I don't see any problem with using "chained CPI". Maybe it's a better measurement. People should focus on what's fair, rather than what's better for themselves or whoever they're in the business of advocating for.

Well $1 trillion of the tax cuts go to corporations.

Is that "fair?"

 

[Alan]

Please keep the discussion focused on the mechanics of the proposal and away from politics.

 

[FIRE'd@51]

I find it counterintuitive that STCG would be taxed at a lower rate than LTCG. It's not a feature one would expect, so it looks like an unintended glitch. It's interesting.

I agree. It also seems counterintuive that qualified dividends would get taxed at a higher rate than interest.

 

[Taxman59]

A quick run through of my situation (married, 1 child in college, managing income for ACA and 0% tax rate after credits). My tax goes up, but continues to be offset by the education credits. so a non-starter for me. I will rerun the numbers when the plan is passed by the Senate, then again when it is ready for President Trump's signature. I expect that the various committees will have more than a few changes (most minor as they relate to my situation, some major, all making it more complicated), so the only one I am really interested in is the final one.

 

[USGrant1962]

I just read in The Hill that the Senate is going to release its own bill next week instead of waiting for the House bill to arrive. There will be plenty to talk about on this subject.

Tax bill raises red flags for Senate GOP | TheHill

EDIT: I hope Kitces does his thing on that one too.

 

[bingybear]

I just read in The Hill that the Senate is going to release its own bill next week instead of waiting for the House bill to arrive. There will be plenty to talk about on this subject.

Tax bill raises red flags for Senate GOP | TheHill

Possibly another bill to tear apart. But wait until a bill appears. It is good to understand how changes will effect us. But let's keep the pig away.

 

[REWahoo]

Possibly another bill to tear apart...wait until a bill appears... let's keep the pig away.

+1

 

[Calico]

Possibly another bill to tear apart. But wait until a bill appears. It is good to understand how changes will effect us. But let's keep the pig away.

Yes, let's. This thread is valuable and I don't want to see it derailed.