Release of final tax bill details

[Katsmeow]

So people who won't be able itemize because std deduction increased come out ahead, correct? And everyone loses the personal exemption, right?

Yes, they lose personal exemption. But no people who won't be able to itemize because of the increase in the standard deduction don't necessarily come out ahead. They may or may not.

For example - let's say that under the old law you could itemize and got the benefit of the itemized items plus exemptions.

Married filing jointly standard deduction was $12700. Plus you get $8100 total for exemption. This is for couple with no kids. (I am not including in this the over 65 deduction).

So, let's say your itemized deductions were $22,700.

You would itemize deductions plus get the exemptions and your taxable income would be $30,800 less as a result.


Under new law you don't get the exemptions. Your standard deduction is $24,000. Since your itemized deductions are less than that, you won't itemize. So, your taxable income is now $24,000 less as a result.

In other words, your taxable income would be $6,800 more under the new plan than it would be under the old law.

You can also imagine situations where someone under the old law had $30,000 or $40,000 in itemized deductions and under the new law would not have deductions as high due to the SALT limitation or other changes.

Now -- as to whether your taxes would go up or down for 2018 it will depend on how all of that shakes out for you and you have to factor in changes in tax brackets and tax rates.

It gets even more complicated for people with kids who lose the personal exemptions but there are changes in child tax credits.

 

[Free bird]

Sell the news coming up.

 

[Lawrencewendall]

One of the issues for many people is that while mortgage interest deduction and SALT are still deductible (below a certain level), that is meaningless unless you have enough total deductions to make itemizing worthwhile. A lot of people who used to itemize will no longer be itemizing due to the increase in the standard deduction (coupled with getting rid of personal exemptions).

This my case. The standard deduction will net me about 3k more than itemizing and the reduction from 15% to 12% and 25% to 22% will bring home about 4k more. All total, 7k in my favor.

 

[Running_Man]

Makes sense. Deferred income taxes are based on stautory tax rates... I can see that wit the signing being so late that it might throw some chaos into corporate year ends (and quarter ends for fiscal year companies). But I would think that the net impact will be quite positive as deferred tax liabilities previously computed based on 35% are recomputed at 21%.... so all else being equal a $1 billion deferred tax liability will become $600 million, releasing $400 million to earnings and equity. That's a big deal.

I would not think it would take up very much time for any corporation to calculate that liability, any more than any other year. The tax rate changes so it will release a large amount of income from annual reports for sure, but it has no cash impact. I would want from a US government standpoint to sign it as it encourages corporations to bring money into the country to actually be taxed at the 21% rate as opposed to being income on which tax is deferred. But calculating the impact on any company - should be pretty straightforward.

 

[Free bird]

Will the child tax credit changes overcome the loss of personal exemptions for someone using the standard deduction filing jointly with 2 under 18 dependents?

 

[pb4uski]

I would not think it would take up very much time for any corporation to calculate that liability, any more than any other year. The tax rate changes so it will release a large amount of income from annual reports for sure, but it has no cash impact. I would want from a US government standpoint to sign it as it encourages corporations to bring money into the country to actually be taxed at the 21% rate as opposed to being income on which tax is deferred. But calculating the impact on any company - should be pretty straightforward.

I would think it would be straight forward as well, but from my experience in the field I know that the devil is in the details and it does get complicated.... if companies are already complaining there must be some good reason as I'm sure the CEOs want to book those profits as soon as possible.

I used to kid with my tax specialist colleagues "How can one get paid so much for adding and subtracting a bunch of number and multiplying the result by 35%?"

Another thing that will be interesting is for net income based incentives whether the rate change is carved out.... one would think it should be but you never know.

One good thing.... it'll reduce P/E ratios from the high levels that they are currently at.

https://www.forbes.com/sites/peterj...ak-havoc-with-reported-earnings/#12e80d8a4eee

 

[Scuba]

Upon advice from our accountant, we ran our bunching numbers through the AMT and find that we are OK.

Lucky you!

 

[Helena]

From what they said on TV, it is only a speech and get together to backslap at 3PM... he is going to sign at a different time...

But, who knows what will happen when the time comes...

That's what FOX Business news said just now. That Trump might not sign the bill until Tuesday because of the inability to get a copy of it to him quickly. Yet Trump previously said he wanted to sign it before Christmas, so it would be a Christmas gift.

 

[Helena]

Sell the news coming up.

That began somewhat during the House vote yesterday...
the DOW went down... but it recovered.

.

 

[meierlde]

Who among you expect to be able to downgrade to a simpler 1040 tax form starting in 2018 (or, perhaps, 2019) after this tax reform law goes into effect? That is, using one of the shorter forms (1040A or 1040EZ) instead of the long form, 1040.

I have had to use Form 1040 if I either itemized my deductions and/or needed to file Schedule D due to making at least one sale of mutual fund shares outside my IRA. There was one year a few years ago when I did neither of those things so I was able to switch to Form 1040A.

Seeing the chances of itemizing my deductions shrinking to nearly zero after 2017, only needing to file Schedule D would force me to use Form 1040 instead of Form 1040A.

Do any of you expect to be as fortunate?

How many folks still do taxes by hand? If you use software either online or on your hard drive and choose to use an interview mode all the complexities vanish into the software. Software chooses the forms needed and fills them out. (plus it removes the odds of arithmetic errors that can happen when doing taxes by hand). Just like as someone pointed out with tax tables who cares how many rates there are. All it means that you may be able in some cases to do it with the free online software rather than paying for the service.

 

[Another Reader]

Cr*p. Guess I will roll the dice and pay tomorrow, unless the CPA gets back to me on my AMT question and says not to. Wake me in January...

 

[Nature Lover]

Per the Tax Policy Center only about 5% of taxpayers will see a tax increase next year. I suspect that is mostly single filers, with above-average income, in SALTy states.

Yep. Single/no kids, less in deductions and no exemption, SALTy state. All combined, results in higher taxable income. Lower tax rates and elimination of AMT helps, but I'll still have a higher tax bill.

Will be interesting to see what the State Legislature does regarding conformity. If nothing, then state taxes due will increase, too.

 

[ExFlyBoy5]

I would not think it would take up very much time for any corporation to calculate that liability

This made me chuckle a little bit. This sounds exactly what bosses across the country are saying RIGHT NOW as they tell their employees that they will need to work late for the next few days, and perhaps during Christmas, too.

 

[jetpack]

Finally found a good summary of the new 199A Business deductions

https://www.watsoncpagroup.com/SubS.pdf

 

[Lsbcal]

So is this tax bill certain enough that I should prepay my Feb 2018 property tax tomorrow?

 

[pb4uski]

So is this tax bill certain enough that I should prepay my Feb 2018 property tax tomorrow?

Are you earning so much interest on cash that prepaying it is a concern?

If so, let us know who you bank with.

 

[marc515]

Did we lose the Home Equity Deduction?

m

 

[cathy63]

So is this tax bill certain enough that I should prepay my Feb 2018 property tax tomorrow?

I'm assuming you can itemize this year and are not in AMT territory.

If you prepay it and then the bill then falls apart, would you still be able to itemize next year? If the answer is yes, then you should pay the prop tax in 2017 as you'll get roughly the same benefit either way, it just comes a year sooner.

If the answer is no, then you have to figure the probability of the new law not going into effect vs the amount of the benefit you would be giving up by prepaying the tax. I personally think the probability of the bill failing at this point is very low, so I would take the risk of not being able to itemize next year.

 

[PatrickA5]

This made me chuckle a little bit. This sounds exactly what bosses across the country are saying RIGHT NOW as they tell their employees that they will need to work late for the next few days, and perhaps during Christmas, too.

If it was my old boss, you'd have to take how long he says it should take and multiply by at least 5. That was if he had a clue about the subject. If he didn't then multiply by 10. Once when he told me he could do himself in an hour, I stood up from my chair and said "have at it". Three hours later he came and got me and said he had a meeting and told me to finish up. He hadn't done anything.

 

[RunningBum]

So is this tax bill certain enough that I should prepay my Feb 2018 property tax tomorrow?

I mailed mine in yesterday. Half due in June, half in December. Itemizing this year, probably not next year at all even if the bill falls through. Higher income this year too, so it's a winner any way you look at it. I called the county tax office to make sure there were no issues with doing that, and how to make sure I'd get credit for it.

 

[Done]

Finally found a good summary of the new 199A Business deductions



https://www.watsoncpagroup.com/SubS.pdf

Thanks, just what I needed to confirm that sole proprietor landlords get the 20% pass-through business deduction. For me, this more than makes up for the limit on SALT deductions, and (because of reduced taxable income) might allow me to continue doing Roth conversions going forward.

 

[gerntz]

Yes, they lose personal exemption. But no people who won't be able to itemize because of the increase in the standard deduction don't necessarily come out ahead. They may or may not.

For example - let's say that under the old law you could itemize and got the benefit of the itemized items plus exemptions.

Married filing jointly standard deduction was $12700. Plus you get $8100 total for exemption. This is for couple with no kids. (I am not including in this the over 65 deduction).

So, let's say your itemized deductions were $22,700.

You would itemize deductions plus get the exemptions and your taxable income would be $30,800 less as a result.


Under new law you don't get the exemptions. Your standard deduction is $24,000. Since your itemized deductions are less than that, you won't itemize. So, your taxable income is now $24,000 less as a result.

In other words, your taxable income would be $6,800 more under the new plan than it would be under the old law.

You can also imagine situations where someone under the old law had $30,000 or $40,000 in itemized deductions and under the new law would not have deductions as high due to the SALT limitation or other changes.

Now -- as to whether your taxes would go up or down for 2018 it will depend on how all of that shakes out for you and you have to factor in changes in tax brackets and tax rates.

It gets even more complicated for people with kids who lose the personal exemptions but there are changes in child tax credits.

But everyone loses the $8100 exemption so to me that's immaterial to the deductions issue. And if your exemptions were $22700 & the std is $24000, you now have have $1300 less taxable income. Seems like you're conflating two separate issues. As for limitations on SALT deductions, that's the intent as I see it.

 

[Curmudgeon]

I'm not sure I entirely understand the pass-through deduction. It doesn't currently affect me, since I don't have any pass-through income.

But, am I correct in understanding that if I have some future side income stream - say, I start writing a blog, or selling trinkets - I should organize as (say) an LLC, and then the first 20% of income from the venture is not taxed?

How about real estate income - say I flip a house, or buy one and rent it out - is the income from this also subject to the 20% deduction? Do I need to organize as a business in order to claim it?

 

[Philliefan33]

For the past seven years we have had schedules A,B,C,D, and E attached to our 1040. Our Schedule A itemized deductions have been $22-24K, but with the $10,000 limit on SALT we will be lower so will probably not have a Schedule A for 2018. But the rest of the alphabet soup will be there. No postcard filing for us!

 

[Running_Man]

I would think it would be straight forward as well, but from my experience in the field I know that the devil is in the details and it does get complicated.... if companies are already complaining there must be some good reason as I'm sure the CEOs want to book those profits as soon as possible.

I used to kid with my tax specialist colleagues "How can one get paid so much for adding and subtracting a bunch of number and multiplying the result by 35%?"

Another thing that will be interesting is for net income based incentives whether the rate change is carved out.... one would think it should be but you never know.

One good thing.... it'll reduce P/E ratios from the high levels that they are currently at.

https://www.forbes.com/sites/peterj...ak-havoc-with-reported-earnings/#12e80d8a4eee

From my experience it would be due to the fact that tax departments are instrumental in setting intercompany price of goods and the change in tax rates does not allow for enough time to come up with reasons to change revenue recognition that will pass muster with the IRS for “arm-lengths” transactions and therefore taxes will not be optimized for the company. Thus nothing to do with deferred taxes but using that as cover for intercompany pricing.

But it is very interesting in that the journal entry for all practical purposes is to debit outstanding liabilities and credit equity, reducing debt leverage. US companies are suddenly going to become much better credit risks.