Proposed tax plan

[scrabbler1]

Being single with no kids, I see the new standard deduction of $12,200 is slightly higher than the current SD+PE of $10,400. That's only $1,800 more, so if my current itemized deduction ever exceeds $8,150 ($6,350 + $1,800), then I will lose out some. I have often mentioned bunching deductions to boost my ID in some years. That would go away because my ID will never get up that high. Even in 2015 when I was in the hospital, it didn't get up quite that high.


Eliminating the med expense deduction only exacerbates an existing problem with the way HI premiums are handled. For those in group plans though an employer, they can deduct their share of the premiums right off the top via a payroll deduction, and they don't have to itemize their deductions to claim this. But for those of us in the individual market, we can deduct only those premiums which exceed 10% of our AGI, and only if we itemize our overall deductions. Why can't HI premiums be fully deductible if you are not in a group plan? Include a line on the 1040 the way IRA deductions are deductible today, equalizing the treatment between IRA and 401k contributions.

 

[Pilot2013]

Just a quick look, since it IS premature, but good to review for conversations with those that represent:

Last year had $33k in Itemized deductions, 11k of which was state income tax. considering a $24k standard deduction, lose $9k times marginal tax rate there;

Also lose $8k of personal exemption, also at marginal tax rate;

Seems on first glance to be $17k additional taxable income @ new rate of 25%. Results in $4k additional tax. I hope I am doing something wrong.

 

[RunningBum]

" Running through your tax calculations seems premature to me."

I disagree. Now is the time taxpayers can determine how they will be affected and contact their reps to express their concerns. That's what the various lobbyist organizations are doing. Once it is proceeds to the voting stage it will be too late.

+1. Public opinion still has some sway, and estimating the actual effects of the plan for yourself seems worthwhile.

It can also be worthwhile for future planning. One might want to start making plans to bunch as many deductions as possible this year, knowing that if this plan passes with that provision you might not be itemizing again.

 

[bingybear]

From what I read, I need to have kids to pay less in taxes... $1,600 tax credit for each.

Overall, I think it will be a very good plan. I am not sure if I pay less, or more. It appears to be better for lower income people which should help.

I'm trying to come to grips that one can't itemize health care expenses, LTCI, health insurance, and health insurance. However, if you get your insurance thru an employer... tax free health insurance....
I'm not sure what I think, yet.

 

[Rianne]

My takeaway
-deficit explodes
-don't buy a house with a mortgage over $500K
-SALT deductions gone
-Corporations and 1% in the sweet spot, which may help investments
-Sad for middle class families, very little help there, glad I don't have kids
-Companies, ok to go overseas, no real penalty there
-I'm happy with ACA
-Irrelevant for income, we can keep it as low as needed, stashed a bunch of after tax cash.

Chime in if I'm wrong anywhere.

 

[MichaelB]

Folks, this is a thread about a proposed tax plan. Comments about the deficit are off topic and pointless (and a clear Porky call)

 

[43210]

(Just joined the forum.) The discussion (and links) are great.
I noticed they're proposing that 529s can be spent on K-12 education (up to $10k/yr).
I'm concerned about what someone said about 457 plans "basically going away" (post #61), but I couldn't find any text suggesting that.

It looks like pretty much everyone in the "middle class" (i.e. 12% bracket) will be somewhat better off.

 

[FIREd]

At first glance, the proposed plan should not affect our effective tax rate if qualified dividends remained treated as favorably as LTCGs and HSA contributions remained deductible (and it seems like they would). The proposed plan would give us a bit more room to do some Roth IRA conversions at 0%.

 

[scrabbler1]

I see that Private Activity bonds are going away. Does this mean that income from those (muni) bonds will become taxable, and not just for AMT?

 

[ERD50]

An elimination of the step-up in cost basis at death seems like an accounting nightmare for many families. How the heck are the beneficiaries supposed to know what the cost basis for something they didn't purchase?

Sure, you can make some kind of guess, and LTGC is 'only' 15% of the gain, so maybe not so horrendous. But I also understand that if IRS isn't satisfied with your documentation, they assume a basis of zero, which could be significant for some people that are way below any threshold for the Estate Tax.

I've felt that if we are going to have a cap gains tax, that you should have to report the original cost basis of your assets every year you file. That way, no one would need to go back any further than last years tax forms to get this information.

-ERD50

 

[Rianne]

Folks, this is a thread about a proposed tax plan. Comments about the deficit are off topic and pointless (and a clear Porky call)

What is "porky call?" A few other deficit comments.

 

[audreyh1]

+1. Public opinion still has some sway, and estimating the actual effects of the plan for yourself seems worthwhile.

It can also be worthwhile for future planning. One might want to start making plans to bunch as many deductions as possible this year, knowing that if this plan passes with that provision you might not be itemizing again.

That's what I'm doing. Maximizing this year's deductions. I already made a large contribution to my DAF. I expect to bunch these in the future as well.

 

[Fermion]

What is "porky call?" A few other deficit comments.

It is the punishment for being bad. You get bacon.

Which doesn't really make a lot of sense, because everybody loves bacon.

(except Vegans, but they must secretly also covet bacon since they make tofu bacon shaped)

 

[audreyh1]

What is "porky call?" A few other deficit comments.

The thread will be closed ending this very useful conversation.

Thread closure is usually accompanied by the "that's all folks" cartoon featuring Porky.

 

[bingybear]

What is "porky call?" A few other deficit comments.

porky... as porky the pig... use to say "that's all folks"

They shut down threads for violating terms and conditions... such as getting too political in the thread.

 

[MichaelB]

Now that that's cleared up (thanks for the explanations ) how about we all get back to what Auydrey1 rightfully termed this "very useful conversation".

 

[Sue J]

Considering the statement below, it appears that the backdoor Roth IRA may be gone as well, again, assuming I am reading this correctly.


Sec. 1501. Repeal of special rule permitting recharacterization of Roth IRA
contributions as traditional IRA contributions.

Current law: Under current law, an individual may re-characterize a contribution to a
traditional IRA as a contribution to a Roth IRA (and vice versa). An individual may also recharacterize
a conversion of a traditional IRA to a Roth IRA. The deadline for recharacterization
generally is October 15 of the year following the conversion. When a recharacterization
occurs, the individual is treated for tax purposes as not having made the
conversion. The recharacterization must include any net earnings related to the conversion.

Provision: Under the provision, the rule allowing recharacterization of IRA contributions and conversions would be repealed. The provision would be effective for tax years beginning after 2017.

Consideration: This provision would prevent a taxpayer from gaming the system by, for example, contributing or converting to a Roth IRA, investing aggressively and benefiting from any gains (which are never subject to tax), and then retroactively reversing the conversion if the taxpayer suffers a loss so as to avoid taxes on some or all of the converted amount.

I currently have both a Traditional IRA and a Roth IRA. Would I still be able to convert some of the Traditional IRA (and pay the tax) to Roth IRA if this passes?

I've never done it so I don't know if "convert" is the correct term. I contributed to the Trad in years where it affected our ACA subsidy. I contributed to the Roth when it didn't - before ACA or in years when we had an HSA.

 

[mpeirce]

That's what I'm doing. Maximizing this year's deductions. I already made a large contribution to my DAF. I expect to bunch these in the future as well.

Us too.

This year is a "bunch it up" year for us - mostly paying two years of property taxes and two years of charitable donations.

If this goes through I'm giving serious though to putting a sizable sum into a DAF and leveraging this for additional ROTH conversions this year.

Then going forward, it'll be no more itemizing. Won't miss it.

 

[JoeWras]

I currently have both a Traditional IRA and a Roth IRA. Would I still be able to convert some of the Traditional IRA (and pay the tax) to Roth IRA if this passes?

I've never done it so I don't know if "convert" is the correct term. I contributed to the Trad in years where it affected our ACA subsidy. I contributed to the Roth when it didn't - before ACA or in years when we had an HSA.

Discussed early in the thread.

This is "recharacterization" which is not the same as a conversion from tIRA to Roth.

Recharacterizations are a kind of "redo" the following year when you overshoot a Roth limit (in short). People were gaming that system.

Basically, you can convert, but it is final.

 

[GrayHare]

I currently have both a Traditional IRA and a Roth IRA. Would I still be able to convert some of the Traditional IRA (and pay the tax) to Roth IRA if this passes?

AFAIK yes, conversions will still be allowed, it's the "un-conversions" that won't. I have not yet seen the replacement tax law handling of contributions to Roth by someone who becomes ineligible for them due to income later that year.

 

[RunningBum]

I currently have both a Traditional IRA and a Roth IRA. Would I still be able to convert some of the Traditional IRA (and pay the tax) to Roth IRA if this passes?

I've never done it so I don't know if "convert" is the correct term. I contributed to the Trad in years where it affected our ACA subsidy. I contributed to the Roth when it didn't - before ACA or in years when we had an HSA.

Yes, I believe so. I haven't seen anything eliminating conversions (that is the correct term for what you describe). What they seem to be taking away is the ability to back out all or part of that conversion, or at least not be able to wait until Oct 15 of the following year to do it. So you'd better not find out later you converted more than you wanted, as you may be stuck with it.

I haven't done the backdoor Roth and I don't understand exactly what they are taking away. My thought that a backdoor Roth was a tIRA contribution followed by a conversion to a Roth. Maybe you can't do that in the same year? It won't affect me so I'm not going to look it up, maybe someone potentially affected understands it better?

 

[Danmar]

An elimination of the step-up in cost basis at death seems like an accounting nightmare for many families. How the heck are the beneficiaries supposed to know what the cost basis for something they didn't purchase?


-ERD50

The way it works in Canada is that the decedant is deemed to have had a disposition of his capital assets at market price on death. Exemption if spouse gets assets. Cap gains tax may be owing at that time. Beneficiaries get the assets at market price. No need for any estate tax with this system.

 

[USGrant1962]

Kitces has chimed in - I have not read it yet but he is always insightful. Looks like some nice graphics comparing current to proposed.

https://www.kitces.com/blog/tax-cut...ail&utm_term=0_4c81298299-04646a6e33-57160561

 

[PatrickA5]

Kitces has chimed in - I have not read it yet but he is always insightful. Looks like some nice graphics comparing current to proposed.

https://www.kitces.com/blog/tax-cut...ail&utm_term=0_4c81298299-04646a6e33-57160561

Excellent summary of the changes. One thing I didn't know was there was going to be a $300 credit for Taxpayer, Spouse and dependent kids that are too old for the Child Tax Credit. It looks like those credits are temporary though.

 

[foxfirev5]

Looks like I may have another 15k or so to withdraw from my traditional IRA to max out the 12% bracket vs the old 15%. Plan B,C or D