Moves due to tax bill passage

[audreyh1]

How about medical expenses (premiums, deductibles and co-pays)? We also purchase LTC and those premiums are deductible. Of course, there is a floor of 10% of AGI before deductability can occur.

We are prepaying January's estimated state taxes.

There is a floor of 7.5% of AGI for 2017 and 2018.

 

[audreyh1]

We’ve made large donations to our DAF over the past two years (2016, 2017) due to unwinding a long held stock position. It frontloads our DAF with about 10 years worth of donations.

I don’t think bunching every other year will work for us anymore with the new standard deduction/no exemptions plus $10K limit on itemized taxes. Unless we have another big charitable donation, but we just did that.

Of course we will re-evaluate in a few years.

Well, unless we suddenly have high medical expenses. Knock on wood that doesn’t happen.

 

[NomDeER]

I’m wondering if any of you are facing the same IRA/401K questions that I am facing. This question is for people like me who are not yet retired, but are trying to plan for ER. As I understand it, only the corporate tax cuts in the bill are permanent. The individual tax cuts are not, and for many, the tax rates will be higher in 2027 than they otherwise would have been.



In recent years, I’ve been deferring taxes instead of doing the Roth route. This had a couple of advantages. First, it dropped my marginal tax rate down into the 25% category. Under the new plan, I will be in the 24% tax bracket no matter what. Second, I had been assuming that my tax bracket would be lower in retirement than it was when I earned the money and put it in my deferred retirement accounts. But, now, it’s not as clear that this will be the case, or at least not to the same degree.



So, does it make more sense to now put money in Roth accounts instead of traditional 401Ks/IRAs? So, should I switch to Roth accounts now?

 

[gayl]

I’m not clear now because I read conflicting information, but the latest article I read said that interest on a HELOC balance of up to $100K will still be deductible if funds were used for home improvement. I’m asking my CPA to confirm.

Your CPA is weeding through the same 1097 pages as the rest of us (think its on pgs 595-600) ... confusion reigns. But Motley Fool usually is close:

https://www.fool.com/investing/2017/12/19/3-ways-the-gop-tax-plan-would-affect-homeowners.aspx

The proposed tax bill would also eliminate a common way for homeowners to use home equity loans to score tax-deductible financing. Interest paid on home equity loans that aren't considered home acquisition debt will no longer be tax deductible under the GOP tax plan. ...The GOP tax plan closes this "loophole" for using home equity as a cheap source of consumer financing.

 

[Gumby]

I’m wondering if any of you are facing the same IRA/401K questions that I am facing. This question is for people like me who are not yet retired, but are trying to plan for ER. As I understand it, only the corporate tax cuts in the bill are permanent. The individual tax cuts are not, and for many, the tax rates will be higher in 2027 than they otherwise would have been.



In recent years, I’ve been deferring taxes instead of doing the Roth route. This had a couple of advantages. First, it dropped my marginal tax rate down into the 25% category. Under the new plan, I will be in the 24% tax bracket no matter what. Second, I had been assuming that my tax bracket would be lower in retirement than it was when I earned the money and put it in my deferred retirement accounts. But, now, it’s not as clear that this will be the case, or at least not to the same degree.



So, does it make more sense to now put money in Roth accounts instead of traditional 401Ks/IRAs? So, should I switch to Roth accounts now?

I am in the same boat. To date, we've contributed to 401k accounts to stay at the top of the 25% bracket. In other words, we've avoided taxes at a 28% rate on those contributions. I have cut back on the new contributions so that we will now be at the top of the new 22% bracket, thereby avoiding taxes at a 24% rate on the contributions we will be making to 401k accounts.

I expect we'll stay in the 22% bracket when we retire in 18 months, and potentially go back up to 25% in 2027. For the next 8 years after that (at least), we'll convert enough from our 401k accounts to a Roth each year to push us to the top of the 22% bracket.

It doesn't make sense to me to avoid taxes at 22% now only to take distributions and pay taxes at the same rate or higher in a few years.

 

[marko]

According to my tax advisor, property taxes can be prepaid as long as the taxing authority is accepting prepayment. In other words, it can’t just be a credit to an account, it must be applied to an assessed or estimated current or future tax liability.

Worst case scenario is that it isn't accepted and you resubmit that payment for as much as is allowed in '18, right? Nothing to lose by trying.

Maybe because being from a 'tax everything' state I've become numb to the tax game. I've reached the point that says "just tell me how big a check I need to write and leave me alone".
My combined property, local and state taxes are higher than my Fed taxes. I've long ago told my accountant that I don't want to jump through hoops to save a few nickels.

 

[Golden sunsets]

Prepaid my 2018 church pledge in full. Paid my January installment of property tax in December (which I have always done anyway). I won't be itemizing next year.

Ditto on the church dues.


Sent from my iPad using Early Retirement Forum

 

[donheff]

According to my tax advisor, property taxes can be prepaid as long as the taxing authority is accepting prepayment. In other words, it can’t just be a credit to an account, it must be applied to an assessed or estimated current or future tax liability.

An early payment of a second installment would qualify, as would an early payment when the county has not yet assessed but offers to accept prepayment and apply to the upcoming assessment.

A payment where there is no acknowledgement of forthcoming liability would probably not qualify.

DC announced that they were accepting prepayments and included a link to the online payments site. I prepaid. AMT is not an issue for us.

 

[Luck_Club]

I'm going to carefully estimate my AGI and do a Roth conversion up to close to the FAFSA auto zero EFC AGI limit because I have a junior in high school who will be completing the FAFSA next October 1st using my 2017 tax information.(*)

(*) As discussed elsewhere, I was planning to Roth convert to that limit anyway, it is just the precision AGI estimation and staying below the cliff parts that are new. If the tax bill had not passed, I would have overconverted by a lot and then recharacterized once I got all my tax information.

Wouldn't the conversion make more sense after your son is done with College? Any converted dollars become "available" as income. CSS profile schools will love you if you make that conversion.

 

[Trooper]

Law has changed to reduce the rate to 7.5% od AGI for 2017 and 2018, so a big help for this year if you itemize.

There is a floor of 7.5% of AGI for 2017 and 2018.

Thanks - I hadn't seen that. Is that only for taxpayers above age 65, or for all?
Seems like this would be a bigger deal in 2017 when the standard deduction is lower.

 

[OldShooter]

Your CPA is weeding through the same 1097 pages as the rest of us ...

This.

There's nothing wrong with searching the internet for opinions, but the most reliable method is to read the bill itself and see if you can find the answer to your questions. https://www.cnbc.com/2017/12/18/prep...-gop-bill.html

Had I done that immediately (see my posts 10, 21, 22, and 23) I would have saved myself and others some confusion.

Don't be intimidated by its 1100 pages. Any PDF reader will have a search function that will allow you to look for things like "home equity" or "equity" where you have a question. Probably you will find your own answer, but if not you can still go back to searching opinions.

 

[audreyh1]

Thanks - I hadn't seen that. Is that only for taxpayers above age 65, or for all?
Seems like this would be a bigger deal in 2017 when the standard deduction is lower.

For everyone

 

[RockyMtn]

Anyone find any decent detailed tax calculators for 2018 that take into account the new law? The one's I have seen are very simplistic when it comes to income, business income, etc.

 

[gayl]

Our charity auction raked in 3× normal .... guess that's a common one. Writing check myself

 

[OldShooter]

In addition to actually reading the bill I found this KPMG paper: https://home.kpmg.com/content/dam/kpmg/us/pdf/2017/12/tnf-conference-agreement-dec18-2017.pdf which is pretty easy reading. It was based on the conference committee report; I don't know if any substantive tweeks were made after that point. I looked on the KPMG web site and could not find whether there is an updated version of this report yet.

 

[SecondCor521]

Don't be intimidated by its 1100 pages. Any PDF reader will have a search function that will allow you to look for things like "home equity" or "equity" where you have a question. Probably you will find your own answer, but if not you can still go back to searching opinions.

Also note that the actual bill itself is the first 500 pages or so and the last half is a much more readable explanation of what the legalese actually means. There is a table of contents for the second half around page 511 or so where each provision is listed. The discussion that follows then lists what the current situation is, what the House version would have done, what the Senate version would have done, and then finally - the most important part - what the conference committee decided as the final version.

It was based on the conference committee report; I don't know if any substantive tweeks were made after that point. I looked on the KPMG web site and could not find whether there is an updated version of this report yet.

There were three minor changes to the bill after conference committee:

"The parliamentarian, a sort of umpire for Senate rules, determined that three elements of the bill violated the Byrd rule:

1. The name. The short name of the bill, the Tax Cuts and Jobs Act, appears to be placed incorrectly in the legislation.
2. Changes to the so-called 529 savings plan. The bill would have allowed money in the college-savings accounts to be used for homeschooling supplies.
3. The exemption for small colleges from a new excise tax. The bill had proposed a tax on college and university endowments exceeding $500,000 for every student enrolled, but it included a provision that would have exempted those with fewer than 500 tuition-paying students. The parliamentarian struck only the words "tuition-paying," the Ways and Means representative said."

From House to revote on Trump, Republican tax reform bill due to Senate Byrd rule - Business Insider

 

[Perryinva]

My 401k plan (and others, I’m sure) allow after tax deductions but not an actual Roth 401k. They allow a once per calendar year rollover of those funds tax free to a Roth or taxed to a tIRA. So basically, I had been fully funding a Roth, plus a larger backdoor Roth each year. So next year all Roth will be at 22% instead of 25, so the increased amount to the Roth is a little better. But I only have another 2 years left at most, so it's effect will just mostly be for effect, similar to the small remaining Roth rollovers I will do to reduce RMDs while delaying SS (which is now a little easier as well since funding that from tIRA funds. . Even $60k is only a savings of $1800. But every little bit helps. Since the plan isn’t to tap the Roth until after 2027, and mainly to avoid bumping to the next bracket it all adds up.

 

[SecondCor521]

Wouldn't the conversion make more sense after your son is done with College? Any converted dollars become "available" as income. CSS profile schools will love you if you make that conversion.

Possibly. I plan to make the conversion anyway, all things being considered.

Not to get into the whole thing here, feel free to PM more questions or ask for more details, but:

1. My kids are generally considering FAFSA schools and not CSS profile schools.
2. Even with the conversion my income will be quite low.
3. There is official guidance that financial aid officers are expected to adjust for Roth conversions because, although they generally increase AGI, they generally are not available to be spent on college costs, at least for FAFSA purposes. I don't know much about CSS profile and how it works in this regard.
4. I kinda need the money to live on five or six years from now since I am retired and the conversion this year is part of my Roth pipeline.

Hope that helps explain.

 

[calmloki]

Well, since I itemized and showed about $16000 in itemized expense in 2017 it seemed like a no brainer to pre-pay the roughly $5500 in property taxes we'll be assessed in 2018. Except. Callled Polk county Oregon and Riverside county California tax offices and neither is accepting payments that have not yet been assessed. We normally pay in full as soon as the property tax statements come out - how do others manage to bunch those payments? The Oregon office said they were precluded by Oregon law from accepting payments not assessed.

 

[Gumby]

Sadly, our our town tax collector won't accept any prepayment of next year's expected property taxes either.

We normally pay in full as soon as the property tax statements come out - how do others manage to bunch those payments?

The way it works here is that you get a bill at the end of May. It is due in two equal installments - one in July and one in January. You could bunch them by paying January, July and December in one year, and just July the next. So you'd get 1.5 years in itemized property taxes one year and take the standard deduction the next.

 

[dm]

I always pay my real estate taxes early. The county discounts the bill 4% if paid by early December.

 

[ERD50]

Well, since I itemized and showed about $16000 in itemized expense in 2017 it seemed like a no brainer to pre-pay the roughly $5500 in property taxes we'll be assessed in 2018. Except. Callled Polk county Oregon and Riverside county California tax offices and neither is accepting payments that have not yet been assessed. We normally pay in full as soon as the property tax statements come out - how do others manage to bunch those payments? The Oregon office said they were precluded by Oregon law from accepting payments not assessed.

Totally dependent upon your local tax collector. Turns out we can pre-pay in our county, as well as Cook County residents (Chicago and suburbs).

Some discussion here as well:

http://www.early-retirement.org/forums/f28/release-of-final-tax-bill-details-89791.html#post1984159

-ERD50

 

[hausfrau]

We don't itemize, but since DD is in private elementary school (and will probably attend private HS) we will add more money to her 529 plan.

 

[bobandsherry]

With keeping my eye on ACA cliff, no change in my plans for this year. No incentive to pre-pay or bunch expenses as other than having to pay back a portion of my ACA tax credit (took my max of LTCG at 0% just to the cliff) I owe no taxes.

 

[Scuba]

Your CPA is weeding through the same 1097 pages as the rest of us (think its on pgs 595-600) ... confusion reigns. But Motley Fool usually is close:

https://www.fool.com/investing/2017/12/19/3-ways-the-gop-tax-plan-would-affect-homeowners.aspx

Yes, thanks, I found something similar yesterday, prompting me to call my CPA. He agreed that since our HELOC was used 100% for home remodel costs, the interest will likely still be deductible. He did express a caveat that he has not yet read the new tax code and therefore could not express a firm opinion yet.

Based on this, since our HELOC rate is only 4.24% and will likely remain deductible, we are not executing the payoff. Would rather have the liquidity at least for now.