Tax Bills

[MichaelB]

The US Senate passed tax legislation last night. We’re looking forward to an informed discussion here on how it differs from the bill passed by the US House, how each affects us, the upcoming reconciliation process, and possible even some year end tax planning.

Unfortunately, details are not available. Once an official summary of the bill has been released and the text published, we’ll open this thread and the topic for discussion.

 

[MichaelB]

It looks like there’s no summary, and there are different text versions of the bill. Media reports are pretty superficial, but they’re all we have for now. Here are a couple
https://www.pbs.org/newshour/amp/politics/what-we-found-in-the-new-senate-tax-bill
https://amp.cnn.com/money/2017/12/02/pf/taxes/senate-tax-bill-passed/index.html
https://www.washingtonpost.com/grap...s-937am:homepage/story&utm_term=.29f428d31051
The moderator team hopes for an informed discussion that focuses on impact to us and avoids advocacy, politics, and social issues. Any discussion on the ACA individual mandate should be taken up in a separate thread in the health care forum.

 

[Amethyst]

We are seriously considering moving out of Maryland because of this bill. The major impact to us is the elimination of SALT (particularly state and local income tax, more so than property tax) deductions, as we pay a lot of SALT. Raising the standard deduction doesn't come close to compensating for SALT deductions.

 

[braumeister]

No particular deadline for the conference committee that I can see, except that they want to get it approved and signed before the end of the year. So based on past performance I expect the rest of the month to be devoted to it, culminating in a massive round of wheeling and dealing as New Year's Eve approaches.

Tuning out now. Wake me when it's over.

 

[JoeWras]

Does anyone have a summary of the current changes?

 

[GrayHare]

The Sched A medical deduction that was to have gone away appears to not only be retained, but also available to more people because the qualifying threshhold is dropping from 10% AGI to 7.5%, but just for 2 years.

 

[scrabbler1]

I have been going back and forth on "bunching" my itemized deductions for 2017. In the absence of any tax law changes, I would benefit from bunching my itemized deductions into 2018 and take the standard deduction for 2017. But the main driver behind this decision is the ability to move my 4th quarter estimated state income tax payment from this month (December) into next month (January, 2018). If state income taxes can't be deducted in 2018, then my plan goes out the window and I'll make that key payment this month. So, I really need to know how this shakes out by the end of the month.

 

[JoeWras]

It looks like there’s no summary, and there are different text versions of the bill. Media reports are pretty superficial, but they’re all we have for now. Here are a couple
https://www.pbs.org/newshour/amp/politics/what-we-found-in-the-new-senate-tax-bill
https://amp.cnn.com/money/2017/12/02/pf/taxes/senate-tax-bill-passed/index.html
https://www.washingtonpost.com/graphics/2017/business/tax-bill-differences-reconciliation/?hpid=hp_hp-top-table-high_taxbills-937am%3Ahomepage%2Fstory&utm_term=.29f428d31051
The moderator team hopes for an informed discussion that focuses on impact to us and avoids advocacy, politics, and social issues. Any discussion on the ACA individual mandate should be taken up in a separate thread in the health care forum.

Thanks. I find the first quoted reference to be useless, deals with trivial, and mostly political. (Don't mean to stomp on a mod's toes, but sorry.) The second one, CNN, has a great summary. The third one adds some nice info, especially looking to reconciliation.

Like many others, I'm trying to ascertain whether to move things up into this tax year if possible. Since I am working 1/4 to 1/2 of next year (DW too), it may still be possible next year. I'm thinking especially about charity contributions to a DAV.

 

[cathy63]

Here's what I have gleaned so far regarding how the Senate bill affects individuals. I just don't care enough to dig into the corporate and passthrough changes so I will leave those aspects to someone else.

Property Tax: deductible up to $10K

Medical: deductible at 7.5% of income vs current 10% for 2018/19, no idea what happens after 2019

Standard Deduction: $24K

Exemptions: eliminated

529 Plans: can be used for tuition at private K-12 schools

Expiration: individual tax cuts expire in 2026 -- I would like to know more about what this means. Does it mean that only the brackets go back to the 10%/15%/etc ranges, or does it also revert the deduction and exemption changes?

AMT: still there, but the threshhold for hitting it is higher -- I didn't find any specifics on the numbers, but it's always been murky to me despite having paid it for many years

401K and IRA limits: didn't find anything on these, but I did see a note that last night's changes restored the catch-up contributions for people who work for charities and public entities, which kind of implies that they might be gone for everyone else

...So, I really need to know how this shakes out by the end of the month.

I hope they'll figure it out, but I'm more afraid that they'll wait until well into the new year to iron out the details and just make it retroactive to January 1.

 

[audreyh1]

Is the required FIFO on selling stocks/mutual funds/ETFs (mutual funds allowed average cost basis) still in there?

 

[RunningBum]

Standard Deduction: $24K

That's for a couple. $12K for single. It helps the discussion a lot to include both, or at least be specific.

 

[43210]

I'm watching the changes to retirement plans. I believe the Senate bill combines the 457b limit with the 401k/403b limit so I could now contribute $24.5k=$18.5k+$6k total, instead of $24.5k to 403b and another $24.5k to 457b (total $49k). (These are on top of 401a, IRAs, HSA - I tax defer most of my income).

In response I would totally change how I contribute to Trad, Roth, taxable. I've looked at the numbers, and planned accordingly, so I'm just waiting to see what the final tax law is.

There were other proposed changes to retirement plans, e.g. they were going to impose the 10% early withdrawals penalty on 457b plans, but that was stricken. So (as things stand) 457b plans will still be a penalty-free source of funding for early retirees below age 55.

 

[JoeWras]

Is the required FIFO on selling stocks/mutual funds/ETFs (mutual funds allowed average cost basis) still in there?

Hard to tell! We hear there were hand written notes on the bill.

Another board quoted this source, but I don't know if it is final: https://www.budget.senate.gov/imo/media/doc/TAX SUBSTITUTE.pdf

(It is a .gov address... But is it the latest?)

EDIT: this source above is quoted from the Senate GOP Twitter. Still wondering if it is what passed: https://twitter.com/BudgetGOP
EDIT2: it looks to be final or near final. Look at page 257, there are those handwritten notes! Holy cow.

The source, on page 254, says "first in, first out". Except "regulated investment companies", so I guess mutuals are excepted.

Turns out I've mostly used FIFO through the years, but, yeah, it could make an impact, especially with intentional gains harvesting.

 

[USGrant1962]

Standard Deduction: $24K

Exemptions: eliminated

Note that it is a little more complicated than that - the child credit goes up by $1000 (about the same result as a $4000 exemption in the 25% bracket, better in lower brackets), but that only applies to dependents under 17/18. Adult dependents now get a $500 credit instead of the $4050 exemption ($300 in the House bill), which is not as good as the exemption in most cases.

 

[meierlde]

Here's what I have gleaned so far regarding how the Senate bill affects individuals. I just don't care enough to dig into the corporate and passthrough changes so I will leave those aspects to someone else.

Property Tax: deductible up to $10K

Medical: deductible at 7.5% of income vs current 10% for 2018/19, no idea what happens after 2019

Standard Deduction: $24K

Exemptions: eliminated

529 Plans: can be used for tuition at private K-12 schools

Expiration: individual tax cuts expire in 2026 -- I would like to know more about what this means. Does it mean that only the brackets go back to the 10%/15%/etc ranges, or does it also revert the deduction and exemption changes?

AMT: still there, but the threshhold for hitting it is higher -- I didn't find any specifics on the numbers, but it's always been murky to me despite having paid it for many years

401K and IRA limits: didn't find anything on these, but I did see a note that last night's changes restored the catch-up contributions for people who work for charities and public entities, which kind of implies that they might be gone for everyone else



I hope they'll figure it out, but I'm more afraid that they'll wait until well into the new year to iron out the details and just make it retroactive to January 1.

Given that the reason a lot of folks got into the AMT range was state income tax deductions, as well as a lot of exemptions, I suspect a lot fewer folks will have to worry about it.

 

[jetpack]

I found this site helpful.
Tax Plan Calculator by Maxim Lott

maybe too simplistic for some.

The Standard Deduction, dropping the ACA requirement and giving a break on pass through llc, will all be big savings for me.

 

[MichaelB]

Multiple posts that bring the ACA into this discussion have been removed. Let’s please keep the discussion on taxes.

 

[DrBrisket]

I found this site helpful.
Tax Plan Calculator by Maxim Lott
...

Jetpack,
Thanks! Very helpful to understand how the changes affect me and getting a quick understanding of end of year tax planning around itemizing for my situation!

 

[Ian S]

At 66 and retired, I have relatively little income and have been relying on selling appreciated assets in an after tax account which is down to about $80K with annual spending of ~$50K. Not yet drawing SS but considering whether or not to do so. The bulk of my net worth apart from the house is in traditional IRAs (~1.1M) and Roth (~$200K) so I'm thinking this may be an opportunity to pull out extra IRA funds (via Roth conversion and/or into after tax account.) It may pay to do this sooner than later if these tax cuts are only temporary. i-orp now includes a calculation based on the House bill so hopefully they'll have one soon for the Senate and then final bills.This will probably be good for stocks at least in the short run so maybe should consider upping the equity asset allocation.

 

[43210]

I found this site helpful.
Tax Plan Calculator by Maxim Lott

maybe too simplistic for some.

Jetpack,
Thanks! Very helpful to understand how the changes affect me and getting a quick understanding of end of year tax planning around itemizing for my situation!

I disagree. These kinds of calculators are rubbish. They miss most of the important details.

 

[gauss]

Does anyone know if the preferential tax treatment given to Schedule C filers (ie 17% business income deduction) will also be extended to Schedule E filers who consider themselves a business?

I know that we have multiple landlords on this forum...

-gauss

 

[easysurfer]

Waiting for the dust to settle before making any planning, decisions or further discussions .

 

[JoeWras]

Does anyone know if the preferential tax treatment given to Schedule C filers (ie 17% business income deduction) will also be extended to Schedule E filers who consider themselves a business?

I know that we have multiple landlords on this forum...

-gauss

Unfortunately, the current bill (https://www.budget.senate.gov/imo/media/doc/TAX SUBSTITUTE.pdf) is a scan because of the handwritten notes, so you can't search it. It would be handy for questions like this.

Hopefully some senate page will get a real version uploaded soon.

 

[43210]

Waiting for the dust to settle before making any planning, decisions or further discussions .

I'm making contingency plans now, because there'll be limited time to act, and it may make big changes in what I do, and I find the analysis fun.

Fortunately I can make changes with payroll throughout the year, but I need to make decisions for January soon. Since all possible tax bills lead to me going either 100% Trad or 100% Roth for 403b/457b, and I don't yet know which it'll be, I think I will use January to lump-max my HSA (which will only be a mistake if I don't stay in the job all year).

 

[43210]

I'm watching the changes to retirement plans. I believe the Senate bill combines the 457b limit with the 401k/403b limit so I could now contribute $24.5k=$18.5k+$6k total, instead of $24.5k to 403b and another $24.5k to 457b (total $49k). (These are on top of 401a, IRAs, HSA - I tax defer most of my income).

In response I would totally change how I contribute to Trad, Roth, taxable. I've looked at the numbers, and planned accordingly, so I'm just waiting to see what the final tax law is.

There were other proposed changes to retirement plans, e.g. they were going to impose the 10% early withdrawals penalty on 457b plans, but that was stricken. So (as things stand) 457b plans will still be a penalty-free source of funding for early retirees below age 55.

I forgot another obvious one. No recharacterizations (in both bills), so you'll need to be sure of your Trad/Roth decisions when you make them.