Federal Tax Cuts Delivered for us - your experience?

[rk911]

just finished preparing our 2018 taxes. all income and deductions are entered into Turbo Tax. results are a 3% decline in our effective tax rate between 2018 (15.5%) and 2017 (18.5%). not going to file right away...leaving some time for any "gotchas" to rear their ugly heads.

 

[pb4uski]

I think it will depend on circumstances.

If I take 2017 income at 2017 and 2018 deductions, limitations and tax rates, my taxes would actually have been higher because of SALT limitations and the structure of my 2017 income which was skewed towards qualified income.

However, if I take 2018 income at 2017 and 2018 deductions, limitations and tax rates, my taxes are lower because of lower rates and more ordinary income than preferenced income.

OTOH, my aunt and uncle, whose income is mostly pensions and SS, are paying much less in tax in 2018.

 

[stepford]

Just out of curiosity - does the OP live in one of the "favored" states with a low or non-existent state tax. Those of us living where a high state income tax may not have quite as pleasant news coming.

 

[pb4uski]

His public profile says that he lives in Illinois.... not a low tax state.

 

[dtbach]

For me it was relatively good news. The law doesn't look good however for the Federal deficit which I'm more concerned about than a couple of % lower personal taxes.

 

[cbo111]

For me it was relatively good news. The law doesn't look good however for the Federal deficit which I'm more concerned about than a couple of % lower personal taxes.

My feelings exactly. As a nation, we are already spending a good percentage of taxes collected on servicing our huge debt. A few hundred $$ that I may save on my personal taxes is simply not worth the financial reckoning that is coming.

 

[LOL!]

just finished preparing our 2018 taxes. all income and deductions are entered into Turbo Tax. results are a 3% decline in our effective tax rate between 2018 (15.5%) and 2017 (18.5%). not going to file right away...leaving some time for any "gotchas" to rear their ugly heads.

Congratulations! I was never at that effective rate even when in the 33% marginal income tax bracket. I conclude that your income is BIGLY HUGE!

A 3% decline might be more than $30,000 in tax savings for the OP.

 

[Bir48die]

My feelings exactly. As a nation, we are already spending a good percentage of taxes collected on servicing our huge debt. A few hundred $$ that I may save on my personal taxes is simply not worth the financial reckoning that is coming.

Which is another thread unto itself.

 

[MichaelB]

Which is another thread unto itself.

Exactly.

 

[misanman]

A few hundred $$ that I may save on my personal taxes is simply not worth the financial reckoning that is coming.

I think the IRS will probably accept additional $$$ over and above what is owed. And thank you for helping to reduce the deficit!

 

[HillCountry]

OP, do you know why is the change? If using TurboTax, you can look at “tax history” to compare with last year.

I have about same income last two years. But effective rate goes from 18.72 to 15.08. All because I don’t trigger AMT this year.

 

[Dtail]

No fed taxes for me and under old rules would have been more than zero.
As to the overall tax cuts......

 

[Cobra9777]

It's complicated. The new standard deduction is lower than the sum of our prior deductions plus personal exemptions under the old law (on average). Previously, we bunched deductions every other year, mainly property tax. With the SALT limitation, bunching no longer makes sense. So it's highly unlikely that we will ever itemize again. However, 2018 was to be a non-bunching year. So for this year, the new standard deduction is actually higher than the standard deduction + exemptions that we would have taken under the old law. But still, on average, the new standard deduction is a negative going forward.

Interestingly, since we Roth convert to the top of the 12% bracket, there is no actual increase in taxable income as a result of the lower deductions, currently. But obviously, our conversions are lower, which will ultimately result in a larger tax torpedo at 70. So yes, it's complicated, but this part is definitely a negative. I chose not to Roth convert into the 22% bracket.

The main positive for us is lower rates on ordinary income (2 pensions and Roth conversions). That part is not complicated but also not a significant amount of savings, given our typical mix of ordinary and qualified. What IS complicated is whether we can take the new QBI deduction on our rental income. I was ready to do it, but the new guidance that just came out does not seem to be favorable to small-time landlords like me who spend less than 250 hours per year working in the "business."

Bottom line is a net positive, mainly from lower rates. Our last non-bunching year was 2016 and our income was almost same as 2018 (change was bracket increase only). Effective rate went down 2.6 percentage points.

 

[rk911]

Just out of curiosity - does the OP live in one of the "favored" states with a low or non-existent state tax. Those of us living where a high state income tax may not have quite as pleasant news coming.

I'm in Illinois where state income tax is flat at 4.95% but Illinois is not exactly a low tax state. we're taxed on everything. the new gov wants to implement a "fair tax" meaning soak the rich-er but he won't define what "rich-er" means. the good news is that the change will require an amendment to the state constitution which likely...hopefully...won't be EZ.

the feds have done their job in reducing tax rates and as usual some tweaking might..will...be needed. residents in states with high SALT rates should be pressing the state legislatures to do the same.

 

[rk911]

For me it was relatively good news. The law doesn't look good however for the Federal deficit which I'm more concerned about than a couple of % lower personal taxes.

no argument but the feds take in plenty of cash. they need to get serious about actually cutting spending...not just a reduction in the increase...but actual cuts.

 

[rk911]

Congratulations! I was never at that effective rate even when in the 33% marginal income tax bracket. I conclude that your income is BIGLY HUGE!

A 3% decline might be more than $30,000 in tax savings for the OP.

depends on your definition of huge but it's not. not going to publish the actual numbers here but I calculated the effective tax rate by dividing taxable income by the total tax owed in both 2017 and 2018.

 

[CRLLS]

His public profile says that he lives in Illinois.... not a low tax state.

Very low tax state, no. But contrary to popular belief, Illinois is not a very high income tax state. They do get us for RE taxes and sales tax and...... RE taxes are subtracted from the Fed AGI . It is however a flat tax so low income people pay the same rate as high income people, assuming neither pays any RE taxes.

For a retired person collecting Pensions, SS, or any W/D from an IRA or 401K, there is zero income tax on those monies.

See here for where Illinois stands with 4.95% max rates compared to other states.

https://taxfoundation.org/state-individual-income-tax-rates-brackets-2018/

 

[rk911]

OP, do you know why is the change? If using TurboTax, you can look at “tax history” to compare with last year.

I have about same income last two years. But effective rate goes from 18.72 to 15.08. All because I don’t trigger AMT this year.

we were better off itemizing last year; this year the new std deduction was much, much, much higher than our itemized list. I always enter all of the itemized deductions instead of just assuming. our TI dropped a tine bit this year since we resigned our part-time jobs.

 

[scrabbler1]

My taxes rose 4% over what they would have been without the law change. The loss of the personal exemption hurts me more than the increase in the standard deduction and the rate reduction from 15% to 12%. Very little of my (ordinary) income is in the 15% bracket because nearly all of my income is either in the 10% bracket or is investment income (and more of it is subject to the unchanged 15% bracket).


I had been bunching my deductions off and on over the years because my itemized deduction hovered around the old standard deduction. No more itemizing.


While I lose Schedule A from my return, I do add 3 more pages (Schedules 1, 2, and 5). Schedules 2 and 5 will have exactly one number each, repeated once on each schedule. My return will now include 8 pages, hardly a postcard. I long for the old law and far simpler return.

 

[rk911]

Very low tax state, no. But contrary to popular belief, Illinois is not a very high income tax state. They do get us for RE taxes and sales tax and...... RE taxes are subtracted from the Fed AGI . It is however a flat tax so low income people pay the same rate as high income people, assuming neither pays any RE taxes.

For a retired person collecting Pensions, SS, or any W/D from an IRA or 401K, there is zero income tax on those monies.

See here for where Illinois stands with 4.95% max rates compared to other states.

https://taxfoundation.org/state-individual-income-tax-rates-brackets-2018/

yes, but the effective tax rate and actual taxes owed are still lower than they were last year. if IL suddenly started taxing pensions this year the result would be different but between the two years our income dropped a tiny bit (<1%) but our effective tax rate dropped 3%. we're happy.

 

[pb4uski]

Very low tax state, no. But contrary to popular belief, Illinois is not a very high income tax state. They do get us for RE taxes and sales tax and...... RE taxes are subtracted from the Fed AGI . It is however a flat tax so low income people pay the same rate as high income people, assuming neither pays any RE taxes.

For a retired person collecting Pensions, SS, or any W/D from an IRA or 401K, there is zero income tax on those monies.

See here for where Illinois stands with 4.95% max rates compared to other states.

https://taxfoundation.org/state-individual-income-tax-rates-brackets-2018/

I dunno... I consider VT to be a high income tax state and a couple with $100k of income pays ~3.9% in tax.... in IL it would be ~4.8% as I understand.

 

[marko]

I dunno... I consider VT to be a high income tax state and a couple with $100k of income pays ~3.9% in tax.... in IL it would be ~4.8% as I understand.

Mass pays 5.05% as of 2019, down from 5.1%; it's a flat tax: no deductions. We don't tax SS though.

We have a voluntary box you can check and pay 5.85% after an outcry that lowering the tax from there to 5.12% was going to cause hardship for social programs, but hardly anyone checks that box; only 1200 people last time I checked.

 

[Luck_Club]

My feelings exactly. As a nation, we are already spending a good percentage of taxes collected on servicing our huge debt. A few hundred $$ that I may save on my personal taxes is simply not worth the financial reckoning that is coming.

+1 you can always donate to the treasury.

 

[RockyMtn]

Combine no more AMT and lower rates on LLC and i'm down from 19.45 effective rate to 15.77.

 

[Cut-Throat]

no argument but the feds take in plenty of cash. they need to get serious about actually cutting spending...not just a reduction in the increase...but actual cuts.

Please tell us exactly what you would like to see cut that would have a meaningful impact on the Federal Budget?