Preparing for higher taxes

[ScaredtoQuit]

Unfortunately, the new tax bill will probably end up hiking taxes for people who itemize heavily and some people with large families. (due to the loss of exemptions) Especially vulnerable are those who make between $150K and about $400K. That includes me and I'm sure a large number of other people on this board. I am taking the following measures to postpone some of the pain for perhaps one more year:

I will pay my 2018 real estate taxes in advance during 2017 thereby creating a windfall on my 2017 tax liability. Since my 2018 real estate taxes will already have been paid, that will enable me to deduct state and local taxes one last time during 2018.

I already have an appointment for some periodontal work with my dentist in February 2018. I intend to make an estimated payment in advance for this work before the end of the year thus gaining one last medical write-off for 2017.

I have also considered the possibility of making some charitable contributions that I would otherwise have made during 2018 in advance (before the end of the year). However, as I think about it, I'm unlikely to actually do this because I'm going to be broke from advancing all of this other $$$

Any of you guys thinking about how to mitigate the impact of this coming tax hike?? I'd love to get some additional ideas.

 

[LOL!]

I am going to wait to see what gets signed into law before I do anything. There are so many unsubstantiated rumors and outright lies about this bill that I think it is prudent to wait to see what gets signed.

Also I didn't think you could deduct medical care paid in advance of the tax year that you got that care:

Payments for future medical care.
Generally, you can't include in medical expenses current payments for medical care (including medical insurance) to be provided substantially beyond the end of the year. This rule doesn't apply in situations where the future care is purchased in connection with obtaining lifetime care of the type described earlier.

 

[ScaredtoQuit]

Yes, I agree. But we'll probably know what's in it by next week. That only leaves about a week to act. Better to make plans NOW so that we can react in a very tight window of opportunity.

 

[JoeWras]

I already have an appointment for some periodontal work with my dentist in February 2018. I intend to make an estimated payment in advance for this work before the end of the year thus gaining one last medical write-off for 2017.

Sorry to hear you have such ongoing medical costs this year. The 7.5% or now 10% AGI minimum always disqualified me for the deduction.

As mentioned elsewhere, I'm using the DAF to bunch charitable contributions both this year, and in some future year.

 

[43210]

Perhaps you could calculate how much your federal taxes have been reduced by SALT deductions over the years, and then donate that amount to the Treasury to pay down the national debt.

 

[king smoothie]

We are in the same category, but since all of our houses now are rentals (military family) and since they are moving up the child tax credit phase out, increasing the child tax credit and providing a dependent credit (if it all goes through), then for the short term we will actually have at least $2000 in tax savings. Based on what I know of the proposals. So not bad for everyone- well for the short term at least, we do have to worry about chickens coming home to roost.

 

[ScaredtoQuit]

Perhaps you could calculate how much your federal taxes have been reduced by SALT deductions over the years, and then donate that amount to the Treasury to pay down the national debt.

Not nice. It is the policy of this Board to minimize political discord. My post is an honest attempt to solicit ideas for dealing with a pending tax increase.

 

[43210]

My comment is actually extremely nice. It gives a positive outlook to the situation. Think of the all those previous tax years as a fortuitous windfall that was a gift from society, and ask how you can give back.

 

[ScaredtoQuit]

Sorry to hear you have such ongoing medical costs this year. The 7.5% or now 10% AGI minimum always disqualified me for the deduction.

As mentioned elsewhere, I'm using the DAF to bunch charitable contributions both this year, and in some future year.

Actually, my wife and I are pretty healthy. I have been deducting medical expenses for some time because I have a lifetime long term care policy. The policy is costing me about $18K per year but the premiums stop in another two years as the original deal was 10 annual payments for a lifetime of coverage. Between that premium and my regular healthcare premiums I always end up being eligible for a healthcare deduction.

 

[Helena]

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I'm anxious to know if the final bill will eliminate the extra over age 65 standard deduction. The House bill eliminates it. The Senate bill retains it. Also there is a difference between the House and Senate version of the lowest tax rate. House = 12% / Senate = 10%


Hopefully, all the details of the final bill will be released tomorrow.


DEC. 14, 2017

" Republicans plan to unveil a final bill on Friday, with the aim of voting on the legislation early next week and delivering it to President Trump for signing before Christmas."

[...]

" Mr. Brady has scheduled a signing of the signature sheets for the conference report — which is the deal that’s been struck between the House and Senate lawmakers on the congressional conference committee — between 10 a.m. and noon on Friday. A majority of the House and Senate lawmakers who are on the conference committee have to sign affirmatively for the bill to move forward. "


https://www.nytimes.com/2017/12/14/us/politics/republicans-tax-bill.html

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[JoeWras]

Actually, my wife and I are pretty healthy. I have been deducting medical expenses for some time because I have a lifetime long term care policy. The policy is costing me about $18K per year but the premiums stop in another two years as the original deal was 10 annual payments for a lifetime of coverage. Between that premium and my regular healthcare premiums I always end up being eligible for a healthcare deduction.

I see. That's better news than you guys having a lot of medical issues.

 

[Bir48die]

I too am taking a wait and see approach. Many of the things that were to be taken away are back in the final proposal. Each person has their own decisions whether to pre-pay expenses for the following year, something that is printed every year about this time.

Since the mortgage deduction is back in up to $750k and a number of things have also been added at least in part, the affect lessens as the days go on.

More than anything I'm more upset about the lack of simplifying the tax code. I do volunteer taxes and the amount of crazy things written into the code is nutty in of itself. It is my belief that by raising the standard deduction maybe some people can be better off just with that in total than itemizing.

We'll see after the dust settles. Hopefully it's simpler than the ACA Act.

 

[meierlde]

Unless you are in the high brackets the child tax credit is as good or better than the old exemption. at the 38% bracket the 1600 tax credit is the equivalent of a 4200 dollar exemption. In the lower brackets it is the equivalent of a larger exemption. (Assuming the children are under 17). In the 25% bracket the 1600 is the equivalent of a 6400 exemption etc. So it primarily affects folks with kids in college more than those with younger children.

 

[Helena]

It is my belief that by raising the standard deduction maybe some people can be better off just with that in total than itemizing.

Under current IRS rules, in 2018, single seniors over age 65 will get $12,250 in tax exemption [$6500 standard deduction + $1600 extra over age 65 standard deduction + $4150 personal exemption]... so the tax plan's proposed Senate $12,000 / House $12,200 standard deduction is less. On top of that, the lowest tax rate is either increased [12% under the House plan] or stays the same [10% under the Senate plan.] But the Senate bill retains the over 65 extra standard deduction [the House bill does not.]

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[Helena]

Unless you are in the high brackets the child tax credit is as good or better than the old exemption....

Apples and oranges.

The child tax credit does not compensate for the loss of adult exemptions.

Personal exemptions are indexed for inflation every year. Tax credits are not.

Under the new bill the index for inflation is calculated by "Chained CPI" which means even those items that are indexed for inflation will increase at a lower rate in the future.

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[Rianne]

IMHO, political discussion should be healthy in FIRE, not degrading or insulting to either party. Both parties have done wonderful things for society. Plus, politics can affect whether or not we can FIRE. Almost everything to do with money is related to politics in some way. The only difference is we (FIRE) know how to budget!

 

[MichaelB]

Folks, this is speculative for now since there is no actual bill so we're going to wait until there is one.