Release of final tax bill details

[aja8888]

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.

 

[pb4uski]

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.

 

[aja8888]

Most provisions are effective for 2018.

All or most?

 

[Gotadimple]

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.

 

[aja8888]

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.

 

[Cobra9777]

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.

 

[cathy63]

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.

 

[aja8888]

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.

 

[Curmudgeon]

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.

 

[pb4uski]

..... 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.

....

	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%

 

[audreyh1]

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.

There are some things that affect 2017 taxes:

• The 7.5% medical deduction threshold which is lowered from 10% for 2017 and 2018.
• The $750,000 mortgage limit on mortgage interest deduction applies to new homes bought after Nov 2 2017.
• The limitation on prepaying state and local income taxes for 2018 which won’t be allowed in 2017 itemized deductions.

There may be more but that’s what I’ve noticed so far.

The date you list above just applies to the tax tables provision.

Each provision lists an effective date and some say after Dec 31 2016. Some provisions have multiple effective dates listed after some sections.

 

[audreyh1]

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.

Yes there are some 2017 tax changes due to the new law if it passes. See my post above.

 

[audreyh1]

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

My dad is not a Qualifying Widower

 

[RockyMtn]

A2. Form 1040 Line 27.

Yes, that automatically happens in tax software like TurboTax.

It's funny how TurboTax removes one from reading the easy to read tax forms. And Form 1040 is only a front-and-back form, so quite easy to read.

A3: Nothing. A sole proprietorship is not taxed as a corporation.

You can read all tax forms on ttax. The one's in your return and any others. Just hit "view" in the tab across the top and select forms instead of step by step.

 

[aja8888]

No, it's there. The AGI requirements have been reduced to 7.5% for 2017 and 2018, and go back to 10% thereafter. No additional restrictions.

Correct me if I am wrong:

So this means that in tax year 2017 (what we are filing THIS year), the CURRENT medical deduction percentage of 10% (changed to this as of 12/31/2016 for all filers), is going to be rolled back to 7.5% for 2017 & 2018 tax filing years.

If so, this means that my current copy of H & R Block tax software (2017 version) will need to be updated by them to implement the 2.5% rollback.

 

[pb4uski]

Appears to be true.

7. Repeal of deduction for medical expenses (sec. 1308 of the House bill, sec. 11028 of the
Senate amendment and sec. 213 of the Code)

Present Law​

Individuals may claim an itemized deduction for unreimbursed medical expenses, but
only to the extent that such expenses exceed 10 percent of adjusted gross income.230 For taxable
years beginning before January 1, 2017, the 10-percent threshold is reduced to 7.5 percent in the
case of taxpayers who have attained the age of 65 before the close of the taxable year. In the
case of married taxpayers, the 7.5 percent threshold applies if either spouse has obtained the age
of 65 before the close of the taxable year. For these taxpayers, during these years, the threshold
is 10 percent for AMT purposes.

House Bill​

The House bill repeals the deduction for unreimbursed medical expenses.
Effective date.−The provision is effective for taxable years beginning after December 31,
2017.

Senate Amendment​

The Senate amendment provides that, for taxable years beginning after December 31,
2016 and ending before January 1, 2019, the threshold for deducting medical expenses shall be
7.5-percent for all taxpayers. For these years, this threshold applies for purposes of the AMT in
addition to the regular tax.

Effective date.−The provision is effective for taxable years beginning after December 31,
2016.

Conference Agreement​

The conference agreement follows the Senate amendment

 

[bingybear]

Correct me if I am wrong:

So this means that in tax year 2017 (what we are filing THIS year), the CURRENT medical deduction percentage of 10% (changed to this as of 12/31/2016 for all filers), is going to be rolled back to 7.5% for 2017 & 2018 tax filing years.

If so, this means that my current copy of H & R Block tax software (2017 version) will need to be updated by them to implement the 2.5% rollback.

most of the tax software makers do updates through out the tax season. Nothing new. They may just have some extras with all the added changes.

 

[easysurfer]

Yes there are some 2017 tax changes due to the new law if it passes. See my post above.

Might have to wait until after opening day of baseball to file my 2017 taxes instead of waiting until just after the Super Bowl .

 

[aja8888]

Might have to wait until after opening day of baseball to file my 2017 taxes instead of waiting until just after the Super Bowl .

Due to a business K-1 that comes in March, I wait until the bitter end also.

 

[audreyh1]

Correct me if I am wrong:

So this means that in tax year 2017 (what we are filing THIS year), the CURRENT medical deduction percentage of 10% (changed to this as of 12/31/2016 for all filers), is going to be rolled back to 7.5% for 2017 & 2018 tax filing years.

If so, this means that my current copy of H & R Block tax software (2017 version) will need to be updated by them to implement the 2.5% rollback.

Yes

 

[Free bird]

Is it possible for a $1500 tax cut for a family of four? Seems like it for me.

 

[43210]

Is it possible for a $1500 tax cut for a family of four? Seems like it for me.

That seems like a very common/typical scenario.

 

[retiredunder50]

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?

Pretty much. The standard deduction for married filing joint was going to be $13,000 in 2018. The 2018 personal exemptions are $4150 each. I believe the refundable portion is only for those who have earned income. I would guess many in this forum no longer have earned income. When the child turns 17 (and up to 24) and is still in college and still qualifies as your dependent, then you can get a nonrefundable $500. (These credits are temporary though.) The discomfort really starts when the kids are over 17 and you lose the bigger child tax credits AND you simultaneously factor in the lost personal exemptions.

 

[43210]

Tax calculators

As a warning there are a lot of terrible calculators out there that get things badly wrong. Here is an example
https://www.calcxml.com/calculators/trump-tax-reform-calculator
clearly written by complete imbeciles that have no clue what they're doing. Beware, and crunch your own numbers.

 

[Texas Proud]

Pretty much. The standard deduction for married filing joint was going to be $13,000 in 2018. The 2018 personal exemptions are $4150 each. I believe the refundable portion is only for those who have earned income. I would guess many in this forum no longer have earned income. When the child turns 17 (and up to 24) and is still in college and still qualifies as your dependent, then you can get a nonrefundable $500. (These credits are temporary though.) The discomfort really starts when the kids are over 17 and you lose the bigger child tax credits AND you simultaneously factor in the lost personal exemptions.

Well, DW does sub teaching so we do get earned income... not much...

Last year, and I think this year, you do have a $1,000 refundable credit for kid going to college... I guess that is going away....


Does anybody know if they got rid of the EE interest not being taxable for college? I have some and I might cash them in if that goes away...