Proposed tax plan

[JoeWras]

Regarding the HSA deductibility I'm struggling with the language as well. The section title states Termination of Deduction and Exclusion for contributions to Medical Savings accounts. Yet in the body of Sec.1311 no details regarding termination of deduction. Perhaps the title says it all

MSA is different than HSA. I think the MSA was a "mistake" of sorts. They are similar, but I think the idea is to converge on HSA.

 

[ripper1]

Just from the talking points, I think we will pay more under the proposed bill. We itemize about 22K, with two exemptions that keeps 30K of our income from taxes. If we can't deduct state & local taxes, we would take the standard deduction of ~24K, but no exemptions under the proposed plan. $6K more income would be taxed (I think more of it at a higher rate than current brackets?)

Yep, we itemize about 29k (lots of medical due to high premiums), with two exemptions that keeps 37k of our income from taxes. Thus 13k more income taxed. Not to mention long term captitol gains would be over the limit of 77,200 so lose the 0 tax on that. So not a winner in this scenario and estimate we would be paying 1700 more a year.

 

[ace8]

Did you figure in the child tax credit of 1600 per child. If you look at it depending on your bracket it is actually worth more than the exemption. (Where does it phase out is the question) At 35% for example 1600 credit is the equivalent of $4500 in an exemption.

Yes, thanks Meirlde. I did use the new number 1600 in my math. I also benefit from the new higher phase outs. I lose some credit on the current system and keep all credit in the new system.

The problem I am having is that loosing the exemptions is pushing CGs over the 12% bracket, thus resulting in additional 15% tax.

I am in the 15% bracket if that was your question.

 

[audreyh1]

sounds like in 2024 and beyond will will have to pay at least 18% for gifts to relatives, friends etc.

I really doubt it. No one is writing about these changes though.

One article today said this referencing the lifetime gift tax exemption

Gift tax

The top rate for the gift tax would be reduced to 35%, from the current 40%. The lifetime gift tax exemption would, similar to the estate tax exemption, double to almost $11 million.

So perhaps that table applies to exceeding it.

And Forbes mentioned that the annual gift tax exclusion remains.

 

[audreyh1]

MSA is different than HSA. I think the MSA was a "mistake" of sorts. They are similar, but I think the idea is to converge on HSA.

They did also use the language health savings account in that part of the bill so it's confusing.

 

[JoeWras]

I really doubt it. No one is writing about these changes though.

It is a little murky as to whether that is after some exemption amount or not.

 

[JoeWras]

They did also use the language health savings account in that part of the bill so it's confusing.

Nothing would surprise me if HSA's are hit. However, I'm basing my guess on some language I heard from some lawmaker during the health bill discussions (in an interview on TV) who was very pro-HSA. He specifically mentioned the original MSA being merged to HSA. Of course, that was the dead on arrival health bill, so this could be different.

But I know nothing, really. Hard to read this stuff.

 

[FIRE'd@51]

Another potential problem for those who currently itemize is that this could increase state income taxes because many states require you to take the standard deduction on your state return if you took it on the Federal return.

 

[audreyh1]

It is a little murky as to whether that is after some exemption amount or not.

I'm guessing it applies after the lifetime gift exemption. I expanded my post above.

 

[foxfirev5]

MSA is different than HSA. I think the MSA was a "mistake" of sorts. They are similar, but I think the idea is to converge on HSA.

OK. I hope that's the case. I also have a RMSA, which I guess was the retirement version. My old company cut off the plan about 15 years ago for new employees. It was funded with after tax dollars but grows tax free. I use it for retiree coverage premiums. The rules have changed to make eligible distributions the same as an HSA.

 

[newtoseattle]

tax plan

Yes - of course, we will see how it ends up in the end. I'm all for a simpler system but wish we wouldn't increase the deficit... Anyways -

A couple things jumped out at me beyond some of the obvious/ major changes in brackets/deductions/etc (I have trouble understanding the legalize of the actual bill)

1) elimination of medical savings account? - sounds like others have said that does not include HSA?

2) change in capital gains exemption for primary residence. not only are 5 out of 8 (instead of 2 out of 5 )years of residence now required, but there is a phase out for single people income's over $250,000. Obviously, not an issue for many/most. But definitely a hit for some upper middle class/rich

4)? change in deferred compensation - I haven't found much on this, but it seems to me that 457 plans might be basically going away because they will be taxed as soon as "vested" - which seems to be not necessarily at the end of employment- not sure I understand that one - so please feel free to enlighten me if anyone read this part and understood it....

 

[JoeWras]

The more I read that bill, and the MSA/HSA stuff, the more worried I am about the HSA part of it. I just can't parse it.

 

[audreyh1]

According to Forbes HSA accounts as they stand are not changed by this bill.

 

[meierlde]

One thing I have not seen mentioned is the NUA rule for at least 401ks which applies to the stock of the company you work for, where if the stock has appreciated in the 401k you can just pay regular taxes on the initial amount and then pay capital gains on the increase in value. this of course tends to be biggest for folks in startups. Evidently in the 2014 proposal it was done away with not sure about todays.

 

[ace8]

Been looking at the Capital Gains language.

It appears they are reducing the 0% bracket for MFJ from 83,400 to 77,200.

A 6,200 lower of the threshold that will cost everyone an extra 930 a year. A nice little grab directed lower income payers.

 

[audreyh1]

Been looking at the Capital Gains language.

It appears they are reducing the 0% bracket for MFJ from 83,400 to 77,200.

A 6,200 lower of the threshold that will cost everyone an extra 930 a year. A nice little grab directed lower income payers.

With a standard deduction of $24K isn't it effectively higher?

I think if you add up 77,400+13,000+4,150*2 under the old
versus 77,200+24,000 under the new, you'll get a higher effective threshold under the new.

I'm getting $98,700 under the old for 2018, and $101,200 for the new.

And notice that within that threshold you are paying 12% on your ordinary income including short term capital gains plus 0% on your long-term cap gains. Cross the threshold and you are still paying 12% on ordinary income including short-term cap gains still up to $90,000+$24,000 and 15% on long term cap gains.

 

[ace8]

With a standard deduction of $24K isn't it effectively higher?

That would seem to depend if you itemize or not. And also if you have more than 2 exemptions.

I should also add the draft has the standard deduction at 24,400.

 

[gayl]

Did some preliminary math and it is not looking good. A lot of unknowns but removing personal exemptions (I have kids) is going to be very bad.

I am looking at 70% increase in federal income tax.

[mod edit]

Yes, I did the math and OUCH.

Yes the standard deduction goes up 12k but personal exemptions go away. So the loss of personal exemptions will hit families that itemize HARD, much harder than the loss of SALT. Wonder if they thought of families at all

 

[audreyh1]

That would seem to depend if you itemize or not. And also if you have more than 2 exemptions.

I should also add the draft has the standard deduction at 24,400.

OK so add $400.

Under the old plan you're going to itemize perhaps if it gets you better than $13,000, just like you might with the new plan to exceed $24,400,

But for comparison sake let's stick with the 2 couple household, standard deduction scenario.

For larger households still using standard deductions plus exemptions someone can do the comparison.

 

[dtbach]

I guess I can't get too excited about the whole thing in that there is nothing much I can do about it. I figure that I'll either get about $1000 or pay an extra $1000 on my little stash. [mod edit]

 

[ace8]

Feel free to do your math. If things work out better for you, great I am happy for you.

I did the math for my family. Took the time to read this lawyer markup nonsense to try and understand and apply their proposal to my situation.

My current best guess is the net is an increase my tax due after credits of 291%. Keep in mind we are talking about tax reform that was promoted and I'll use the title from the draft house bill...

"Tax Cuts and Jobs Act"

Keep in mind, I am doing this math for a middle class family in a high tax state with moderate COL. We will never sniff the top of the proposed 25% bracket and don't even dream of the top of 35% bracket 1M

I did something today that I have not done since I was a kid applying to military academies ... wrote my senators ... suffice it to say the tone of the letter was a bit different.

 

[jazz4cash]

Looks like we would've paid about 7% more on last year's income with this proposal. Ouch! Next year will be worse. I figure a big hit to home value due to cap on mortgage interest deduction. I only heard about changing the cap gains exemption on sale of principal residence on here so I'll need to take a look at that. Probably wouldn't affect us too much.

 

[Cobra9777]

I just did a quick check of how the new tax proposal would affect us. Seems to be lots of moving pieces but no real change in the bottom line. We benefit slightly from the lower rates but that's almost exactly offset by elimination of personal exemptions and certain deductions. We have no income tax in Texas but we'd lose the sales tax deduction. And the $10K cap on property tax would negate our current strategy of bunching property tax every other year, as the higher standard deduction would be slightly better.

I like the 12% rate going to $90K for MFJ. For us that will mean larger Roth conversions and a lower rate on those conversions compared to our current plan. That's probably the biggest positive I see.

This seems to be a much bigger deal on the corporate side. Huge rate drop and other benefits, like 5 years of expensing capital expenditures. My former Megacorp has stated publicly (in a recent earnings call) that any benefit from tax reform will go directly to shareholders in the form of higher dividends and stock buy-backs. I suspect that may be the case for many large corporations. If so, there could be additional direct benefit to folks like us, who hold lots of stock, beyond the usual talking points of economic growth and jobs.

 

[Release The Hounds]

Another thing to note is that only a few of the features in this tax bill are permanent, most notably the decrease in the corporate tax rate from 35% to 20%. The rest expire after 6 years or so.

 

[rodi]

Can I remind everyone that this is not law yet. Michael outlined the steps it needs to go through... Running through your tax calculations seems premature to me. Who knows what the final version will be. I'd rather do other things than calculate "what if" taxes on something that is several steps away from law.

A reminder - this is just a bill. It still needs to

- be passed by majority vote in the House
- another tax bill needs to be written, then passed in the Senate
- the two bills need to be reconciled
- both chambers need to pass the new reconciled bill
- then it needs to be signed by POTUS.

Lots of things will change during that process - if it makes it that far.