Federal Tax Cuts Delivered for us - your experience?

[scrabbler1]

2018 was my first year of retirement, and my taxes sure reflected that. My federal taxes decreased $73,200 compared to 2017, and my state taxes decreased $22,400. All in all, I paid $95,600 less taxes compared to 2017. I think it's time for a drink!

I had a similar decrease in my first year of ER. But it was mostly due to the tax bill from cashing out nearly $300k in company stock in my final year of working, a huge upward spike in income. I saw my Fed taxes drop $52k and my state taxes drop $21k.

I am living off the monthly dividends that $300k (and more, later on) got invested into. Taxes are pretty low on that, thankfully.

 

[swakyaby]

Congratulations!!! That has to feel awesome!!!

We too are looking forward to a large drop in taxes in our first year of retirement (2020).

Thanks! The change is amazing. I knew I would pay less taxes, but this is the first time I actually tabulated it. For 2019, I am enrolled in a ACA plan rather than continue with a COBRA plan, saving another $18K in premiums. Time for another drink!

 

[Perryinva]

Paying enough in taxes to SAVE $95k in taxes is the definition of a first world issue! Congrats on your success. Because of a move/mortgage change & then a severance plus pension through most of 2020, I will not have a normal retirement income/tax bill until 2021. The SALT limit hurt in 2018, but will be fine in 2021 and beyond.

 

[JDARNELL]

Tax Results

OK I finally got around to reviewing what my CPA sent me about taxes. My AGI was up $2540 and my total tax bill went down $725. Part of this was due to my restructuring some income. I have one kid in college where I get educational tax credit of $2500 the $500 dependent credit and and another kid that is 17 where I get another $500 dependent credit. Of course if I could get them off the pay roll I would save a lot more than the tax credits by not paying tuition, books, car insurance etc.

So I guess at the end of the day the tax change benefited my wallet on the tax front. Amount didn't change my life but I will gladly pay the least amount I legally can.

JDARNELL

 

[tulak]

Filed last night. Went from an effective rate of 19.74% to 18%, so a slight decline.

It probably would have been even better, if we didn’t have to take a one time capital gains hit.

2019 should be more interesting, since that will involve a change in filing status. I’m expecting my effective rate will be higher.

 

[socca]

The new QBI deduction delivered a modest tax credit this year. A 20% deduction on pass-thru income sounds impressive until you remember that the actual tax credit depends upon the person's tax bracket. So, for example, for someone in the 22% tax bracket the actual tax credit is only 4.4%. Is the substantial additional complexity in the Federal tax code "worth" the modest resulting tax credits? I seems that this question doesn't often get asked.

The elimination of the penalty for purchasing non-[A]CA compliant insurance (new in 2019) will deliver a much larger tax reduction in 2019 than the QBI deduction - YMMV.

 

[audreyh1]

The new QBI deduction delivered a modest tax credit this year. A 20% deduction on pass-thru income sounds impressive until you remember that the actual tax credit depends upon the person's tax bracket. So, for example, for someone in the 22% tax bracket the actual tax credit is only 4.4%. Is the substantial additional complexity in the Federal tax code "worth" the modest resulting tax credits? I seems that this question doesn't often get asked.

The elimination of the penalty for purchasing non-[A]CA compliant insurance (new in 2019) will deliver a much larger tax reduction in 2019 than the QBI deduction - YMMV.

Interesting. We got the full 20% deduction and I saw some complex computations but didn’t realize about that steep cap.

We found ourselves in the interesting situation where our taxable ordinary income was between $77,200 and $77,400. So we were still in the 12% tax bracket, but out of the 0% cap gains tax bracket. At least we got the full QBI deduction. Weird!

Edited to add: I don’t believe the wage limitations on QBI apply in the case of all passive income from REITs, so we would have gotten it regardless.

Yes, here from the Kitces blog

Notably, the new Qualified Business Income (QBI) deduction under Section 199A is available for direct investments in real estate as well. However, direct real estate investments only qualify for the deduction if the amount of real estate investment activity amounts to a real estate “business” (where purely passive real estate investment income may not count), and is further limited for certain high-income individuals due to wage-and-depreciable-property tests that apply to married couples with taxable income above $315,000, and all other filers with taxable income about $157,500. By contrast, qualified REIT dividends simply obtain the 20% Section 199A deduction, implicitly counting as a real estate “business” (by virtue of a REIT’s size and scale), and without any high-income limitations on the deduction!

 

[Gumby]

Last year, effective tax rate of 14.84%. This year effective tax rate 14.44%. Gross income almost the same.

 

[target2019]

Our 2018 PDF saved with all worksheets is 144 pages (Turbotax).
2017 PDF was 136 pages.
We got .058823529411765% more pages.

 

[Andre1969]

I just had my taxes done on Friday, and I'm getting a refund this year, whereas I owed last year.

For 2017, I owed about $2500 federal, and around $233 state/local.
For 2018, I'm getting back about $170 federal, and around $1550 state/local.
For me, the big difference was I bought a house in September, which came with a few writeoffs at closing. I came in above the $10,000 SALT cap, but it was still worth it to itemize. And, just three months of the new mortgage payment far exceeded all of my mortgage payments in 2017. I had the old place paid in full in February 2018, I believe.

Another helping factor was that I got slightly burned on some market timing late in the year. I sold off a few things at a loss, thinking the market would stay down longer than it did. While that did give me a nice loss writeoff in some instances, I really should have just stayed the course and waited it out. Things bounced back a lot quicker than I thought they would.

 

[jimbee]

Our 2018 PDF saved with all worksheets is 144 pages (Turbotax).
2017 PDF was 136 pages.
We got .058823529411765% more pages.

Um, I think you need to move the decimal point two places or remove the percent sign.

 

[pb4uski]

Yup. Math can sometimes be hard.

 

[socca]

Time spent preparing my personal tax returns (FED + 3 states; filing not required in FL)

Tax Year : Hours
-------------------
2016 : 30
2017 : 30
2018 : 46

That's an additional 16 hours of my life I won't be getting back.

 

[MarieIG]

Time spent preparing my personal tax returns (FED + 3 states; filing not required in FL)

Tax Year : Hours
-------------------
2016 : 30
2017 : 30
2018 : 46

That's an additional 16 hours of my life I won't be getting back.

Hire an accountant.

 

[slowsaver]

2018 Taxes

We always owe money to the IRS at the end of the year, but this year, we had to write a check about 2X larger than previous years. I figured this meant our taxes went up (due to a cap on write-offs); however, that wasn't true. I checked last year's taxes. We made the same amount of income in 2018 as 2017, but our employer's withholding dropped a lot in 2018. Comparing total tax due (2017 vs. 2018), our taxes actually went down by $7k even though we had to write a check that was $10k larger than last year.

 

[Bongleur]

2017 vs 2018
OUR MFJ

marginal 15% to 12%
effective 12% to 10%
So I guess going forward I'm paying 12/15 = 80% of what I used to, until I fill up the marginal bracket.



2016 vs 2018 (2017 was an unusual income year)

MOM single
marginal 25% to 22%
effective 17% to 13%