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Old 12-17-2017, 11:20 AM   #241
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Originally Posted by Golden sunsets View Post
One other change that I have not seen mentioned here that I think is pretty significant and straightforward and potentially important for all of us is the change in standard deduction and the income brackets for widows. Under the current law a widow drops back to the standard deduction, I think after the second year of death and to my knowledge gets no special breaks on tax brackets and is taxed at the singles rate.

Under the law to be voted on the widow keeps the same deduction and tax brackets as when he/she was filing MFJ(although losing one component of the over 65 extra deduction). So where a couple in the new plan will claim a standard deduction of 26,600, upon death that deduction only drops to 25,300 and continues to be taxed on the table for MFJ.

If my interpretation is correct, this is a huge benefit to widows. Yet another reason why making these changes permanent would be a benefit. In our modeling we were always aware that when one of us passes, the other inherits the entire estate, with a corresponding increase in tax burden.
I assume you're referring to the Qualifying Widow(er) with Dependent Child status. If it is the same as in the past (which I haven't verified), you get to take this for 2 years following the year of death - BUT only if you have a Dependent Child. Just being a Widow doesn't get you the breaks.
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Old 12-17-2017, 11:39 AM   #242
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Originally Posted by Texas Proud View Post
So I want to make sure I understand the standard deduction and exemption...

I think that the new standard deduction for married filing joint is $24,000... but exemptions are cut....

So, last year my standard deduction was $12,600 and exemptions of $16,200 totaling $28,800.... but next year standard is $24,000 and exemptions is zero for a total of $24,000...

I guess to offset this they increased the child tax credit by $1,000 and the refundable portion by $400....

Is my thinking correct?
I think so. But also consider that the rates are lower, so some increase is offset.

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Old 12-17-2017, 11:57 AM   #243
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Originally Posted by Curmudgeon View Post
But the language I saw (posted by you earlier in this thread) says taxes "paid or accrued in the taxable year" are deductible. So if I pay them in 2018 they're deductible in 2018, right?
I'm not clear. Clearly they are attempting to prevent pre-paying. But what about paying prior and current year?
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Old 12-17-2017, 12:00 PM   #244
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Originally Posted by Golden sunsets View Post
One other change that I have not seen mentioned here that I think is pretty significant and straightforward and potentially important for all of us is the change in standard deduction and the income brackets for widows. Under the current law a widow drops back to the standard deduction, I think after the second year of death and to my knowledge gets no special breaks on tax brackets and is taxed at the singles rate.

Under the law to be voted on the widow keeps the same deduction and tax brackets as when he/she was filing MFJ(although losing one component of the over 65 extra deduction). So where a couple in the new plan will claim a standard deduction of 26,600, upon death that deduction only drops to 25,300 and continues to be taxed on the table for MFJ.

If my interpretation is correct, this is a huge benefit to widows. Yet another reason why making these changes permanent would be a benefit. In our modeling we were always aware that when one of us passes, the other inherits the entire estate, with a corresponding increase in tax burden.
Seriously? My Dad who has been a widower for a very long time gets to use the MFJ standard deduction (plus over 65 standard deduction)?

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Originally Posted by PatrickA5 View Post
I assume you're referring to the Qualifying Widow(er) with Dependent Child status. If it is the same as in the past (which I haven't verified), you get to take this for 2 years following the year of death - BUT only if you have a Dependent Child. Just being a Widow doesn't get you the breaks.
OK - that makes more sense.
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Old 12-17-2017, 12:00 PM   #245
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Originally Posted by audreyh1 View Post
I'm not clear. Clearly they are attempting to prevent pre-paying. But what about paying prior and current year?
Are they trying to prevent prepaying just during the transition from current tax rules to the new tax rules, or are they trying to prevent bunching in general? I got the impression it was the former, but I'm not sure.
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Old 12-17-2017, 12:12 PM   #246
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Seriously? My Dad who has been a widower for a very long time gets to use the MFJ standard deduction (plus over 65 standard deduction)?
normally you're an incredible resource but according to the IRS website, if the spouse died prior to 2014 the status reverts to Single in 2016. I just checked their interactive trail and confirmed. So this could be a game changer for a number of widow/ widowers
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Old 12-17-2017, 12:24 PM   #247
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Originally Posted by Golden sunsets View Post
One other change that I have not seen mentioned here that I think is pretty significant and straightforward and potentially important for all of us is the change in standard deduction and the income brackets for widows. Under the current law a widow drops back to the standard deduction, I think after the second year of death and to my knowledge gets no special breaks on tax brackets and is taxed at the singles rate.

Under the law to be voted on the widow keeps the same deduction and tax brackets as when he/she was filing MFJ(although losing one component of the over 65 extra deduction). So where a couple in the new plan will claim a standard deduction of 26,600, upon death that deduction only drops to 25,300 and continues to be taxed on the table for MFJ.

If my interpretation is correct, this is a huge benefit to widows. Yet another reason why making these changes permanent would be a benefit. In our modeling we were always aware that when one of us passes, the other inherits the entire estate, with a corresponding increase in tax burden.
Multiple people have responded to this post. I find it astonishing that such a significant change would not have been all over the news for weeks. Could you please explain where you got this from, either in the legislation itself, or at least a link to some source for this claim?
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Old 12-17-2017, 12:29 PM   #248
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There is no "game changer" on this front. And as previously noted, most early retirees will not qualify because they will not have dependent children living with them. Absent that you can file MFJ in the year that your spouse dies and single in years after that unless you remarry.

From H&R Block:

Quote:
Qualifying widow(er)

If you qualify, you can use this filing status for the two tax years after the death of your spouse. However, you can’t use it for the year of death.

To qualify, you must meet these requirements:
  • You qualified for married filing jointly with your spouse for the year he or she died. (It doesn’t matter if you actually filed as married filing jointly.)
  • You didn’t remarry before the close of the tax year.
  • You have a child, stepchild, or adopted child you claim as your dependent. This doesn’t apply to a foster child.
  • You paid more than half the cost of maintaining your home. This must be the main home of your dependent child for the entire year, except for temporary absences.
If you file as a qualifying widow(er), you can’t claim an exemption for your deceased spouse. However, you can use the married filing jointly tax table or tax rate schedule. The qualifying widow(er) standard deduction is the same as married filing jointly.
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Old 12-17-2017, 12:39 PM   #249
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Originally Posted by Golden sunsets View Post
One other change that I have not seen mentioned here that I think is pretty significant and straightforward and potentially important for all of us is the change in standard deduction and the income brackets for widows. Under the current law a widow drops back to the standard deduction, I think after the second year of death and to my knowledge gets no special breaks on tax brackets and is taxed at the singles rate.

Under the law to be voted on the widow keeps the same deduction and tax brackets as when he/she was filing MFJ(although losing one component of the over 65 extra deduction). So where a couple in the new plan will claim a standard deduction of 26,600, upon death that deduction only drops to 25,300 and continues to be taxed on the table for MFJ.

If my interpretation is correct, this is a huge benefit to widows. Yet another reason why making these changes permanent would be a benefit. In our modeling we were always aware that when one of us passes, the other inherits the entire estate, with a corresponding increase in tax burden.
Where did you see this? I just searched the Conference Committee's Joint Explanatory Statement that reconciled the House and Senate, and the word "widow" is nowhere in it.
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Old 12-17-2017, 12:40 PM   #250
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I was wondering if anyone noticed a change in gifting rule. Present law one can gift 14k/per year/per person without having to file a gift tax return. Is there a change to this in the new "potental" law? I did not catch it when I looked.
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Old 12-17-2017, 12:41 PM   #251
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Thinking out loud here, but once this thing is passed and law, and in effect for tax year 2017, anyone who already purchased third party tax software (TTAx, H&R Bkock, etc) will be in need of an update from those suppliers before filing.

Just a thought.
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Old 12-17-2017, 12:42 PM   #252
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Thinking out loud here, but once this thing is passed and law, and in effect for tax year 2017, anyone who already purchased third party tax software (TTAx, H&R Bkock, etc) will be in need of an update from those suppliers before filing.

Just a thought.
Most provisions are effective for 2018.
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Old 12-17-2017, 12:45 PM   #253
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Most provisions are effective for 2018.
All or most?
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Old 12-17-2017, 12:47 PM   #254
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Thinking out loud here, but once this thing is passed and law, and in effect for tax year 2017, anyone who already purchased third party tax software (TTAx, H&R Bkock, etc) will be in need of an update from those suppliers before filing.

Just a thought.
Almost. The conference agreement has an effective date of January 1, 2018. So no changes in tax software for tax year 2017.

Here's the effective date of the new tax tables (page 537 of the conference document):
Effective date.−The provision applies to taxable years beginning after December 31, 2017.
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Old 12-17-2017, 12:49 PM   #255
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Almost. The conference agreement has an effective date of January 1, 2018. So no changes in tax software for tax year 2017.

Here's the effective date of the new tax tables (page 537 of the conference document):
Effective date.−The provision applies to taxable years beginning after December 31, 2017.
Great! Thanks.
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Old 12-17-2017, 12:51 PM   #256
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I changed it to make the Roth conversion the same to make it easier to understand the impact of the change in the law (vs post #194). The impacts would be similar as long as the taxable income is in the 12% tax braacket.

The SALT provisions will increase my TI by $3,362 and the loss of those deductions at 12% is $391 more in tax.

OTOH, the change in rates from 15% to 12% will save money. The 12% tax bracket is $58,360 wide ($77,400-$19,050). However, in my case, $53,815 of that uppermost tax bracket is filed with qualified income that gets taxed at 0%, leaving only $4,535 of room for ordinary income. That $4,535 of ordinary income gets taxed at 12% rather than 15%, saving me $136.

So even though the rate is lower, the benefit of those lower rates to me is diluted by the fact that a lot of that lower rate bracket gets filled with 0% qualified income.

If all my income was ordinary income, then I would get a net savings because the rate change savings of $1,751 ($58,360 * 3%) would eclipse the SALT impact of $391.
Agreed, more qualified income dilutes the effect of the lower rate. Our case is more ordinary income due to two pensions. So the impact is a small net positive.

My only nitpick with your analysis is that you quantify the negative impact of increased income due to the SALT provisions, while also stating that you intend to reduce Roth conversions by the same amount so that income stays at the top of the 12% bracket. So as a practical matter, your income will not go up and you will benefit from the lower 12% rate, even if only a very small amount due to your specific mix of qualified and ordinary.

It seems to me that for early retirees in this situation (managing income to the top of the 15%/12% bracket via Roth conversions), the negative impact of the SALT provisions, if any, is deferred to the future. Near-term impact will be positive due to lower rates, while the lifetime net impact may be negative or positive depending on the relative impacts of SALT vs rates as applied to each individual circumstance.

So yes, when you originally concluded "small tax increase for us", I was surprised. I don't see how that's possible in 2018 if you manage income to the top of the 12% bracket. Lifetime impact? Sure. And I think that's what you were showing in the second table. Seems to me your first table is a better representation of what will actually happen in 2018, which is a small tax reduction on same taxable income.
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Old 12-17-2017, 12:53 PM   #257
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Thinking out loud here, but once this thing is passed and law, and in effect for tax year 2017, anyone who already purchased third party tax software (TTAx, H&R Bkock, etc) will be in need of an update from those suppliers before filing.

Just a thought.
Well, that's always true. Every year there are some forms that aren't finalized until January or even February. If you buy your tax software in Dec, you can't print or e-file a final return until you have downloaded updates.
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Old 12-17-2017, 12:57 PM   #258
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Well, that's always true. Every year there are some forms that aren't finalized until January or even February. If you buy your tax software in Dec, you can't print or e-file a final return until you have downloaded updates.
Yes, I understand the annual form update process. I was referring to any changes that would effect any of the 2017 tax rules currently in effect.

Having not read the 1,000+ pages of the proposed rules, I threw out the comments for responses.
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Old 12-17-2017, 01:17 PM   #259
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Are they trying to prevent prepaying just during the transition from current tax rules to the new tax rules, or are they trying to prevent bunching in general? I got the impression it was the former, but I'm not sure.
The specific dates mentioned seem to make it clear that they are just trying to prevent the prepaying of taxes in 2017 to avoid the 10K limit in 2018. Other than that prepaying doesn't seem to be prohibited, nor does bunching.
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Old 12-17-2017, 01:18 PM   #260
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..... My only nitpick with your analysis is that you quantify the negative impact of increased income due to the SALT provisions, while also stating that you intend to reduce Roth conversions by the same amount so that income stays at the top of the 12% bracket. So as a practical matter, your income will not go up and you will benefit from the lower 12% rate, even if only a very small amount due to your specific mix of qualified and ordinary.

It seems to me that for early retirees in this situation (managing income to the top of the 15%/12% bracket via Roth conversions), the negative impact of the SALT provisions, if any, is deferred to the future. Near-term impact will be positive due to lower rates, while the lifetime net impact may be negative or positive depending on the relative impacts of SALT vs rates as applied to each individual circumstance.

So yes, when you originally concluded "small tax increase for us", I was surprised. I don't see how that's possible in 2018 if you manage income to the top of the 12% bracket. Lifetime impact? Sure. And I think that's what you were showing in the second table. Seems to me your first table is a better representation of what will actually happen in 2018, which is a small tax reduction on same taxable income.
I guess since absent Roth conversions my tax would be zero in either case then it is silly to look at the overall tax being lower and be happy... to me it is more the tax paid in relation to the amount converted that matters.

I hesitate to call Roth conversions income because it is really just moving money from one pocket to the other, but if I look at the marginal tax cost of my conversions and the marginal income (increase in taxable income) then my taxes have increased... not decreased.

To suggest that I have benefitted from the new law because my tax bill is lower when the effective rate on my conversion is higher is just spin.... bottom line is that I am paying more in tax for each dollar converted under the new law vs the current law.

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....
  Current     Conference   
  Roth Conv Rate Tax   Roth Conv Rate Tax
0% bracket 5,278 0% -   1,916 0% -
10% bracket 19,050 10% 1,905   19,050 10% 1,905
15%/12% bracket 7,897 15% 1,185   7,897 12% 948
Total 32,225   3,090   28,863   2,853
Effective rate   9.6%   9.9%
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