Proposed tax plan

[pb4uski]

Well $1 trillion of the tax cuts go to corporations.

Is that "fair?"

Just something to keep in mind... corporations don't "keep" any tax savings... they ultimately find their way back to us. ~75% of US equities are owned by directly by US households or indirectly in defined benefit pension plans, mutual funds, insurance companies and others.

 

[Amethyst]

It could be the one thing that drives us out of Maryland, where we would really like to stay (we like our home). No way does eliminating the AMT make up for it.

The loss of the state and local tax deduction is going to hit a big chunk of the upper-middle class/lower-upper class in high income tax states with a big tax increase.
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[pb4uski]

Have you run the numbers? See posts 162, 166 and 192. Since there are so many moving part to this bill it is hard to intuit the impacts.

I know when I calculated the difference based on the numbers of the last year that I worked in a high-tax state that I was surprised that the result was pretty benign.

 

[Hamlet]

Can someone check my understanding of the standard deduction change?

The standard deduction goes from ~6k to about ~12k, but the personal exemption of 4k is going away.

So from a practical standpoint, this really is a change from 10k to 12k for single non-itemizers, not a doubling like everyone keeps saying, correct?

 

[scrabbler1]

Can someone check my understanding of the standard deduction change?

The standard deduction goes from ~6k to about ~12k, but the personal exemption of 4k is going away.

So from a practical standpoint, this really is a change from 10k to 12k for single non-itemizers, not a doubling like everyone keeps saying, correct?

That's my take on it, too. And some years I itemize with a fairly small ID, just slightly over the SD (often due to bunching). That ain't gonna happen if this plan goes through because most of my ID is from state income taxes and medical expenses. At best I break even with some years I gain a little and other years I lose a little.

 

[audreyh1]

Can someone check my understanding of the standard deduction change?

The standard deduction goes from ~6k to about ~12k, but the personal exemption of 4k is going away.

So from a practical standpoint, this really is a change from 10k to 12k for single non-itemizers, not a doubling like everyone keeps saying, correct?

Right - it's an increase overall, but not a huge one. And there is no "doubling" effect.

 

[Ronstar]

The proposed tax plan is very important to retirees. The moderators have asked that members keep comments focused on the mechanics of the proposal and to refrain from political commentary.

Please refrain from political inferences in posting such that we can allow the thread to continue.

 

[Amethyst]

To me, that means any questions as to the proposals' fairness is a no-no, but their potential, practical impact on any group or individual is very much of interest and is OK.

The proposed tax plan is very important to retirees. The moderators have asked that members keep comments focused on the mechanics of the proposal and to refrain from political commentary.

Please refrain from political inferences in posting such that we can allow the thread to continue.

 

[REWahoo]

To me, that means any questions as to the proposals' fairness is a no-no, but their potential, practical impact on any group or individual is very much of interest and is OK.

Give the lady a cigar...

 

[powerplay]

It is good to see this discussion. I really appreciated the link to the Kitces blog post. It looks like I will face higher federal and state taxes under the current proposal. Now to sit back and follow this as it evolves.

It makes this year and future year tax planning a challenge. I thought managing income to keep the price of future medicare B down was all I needed to be concerned with, but looks like lots more things to consider.

 

[Winemaker]

Can someone check my understanding of the standard deduction change?

The standard deduction goes from ~6k to about ~12k, but the personal exemption of 4k is going away.

So from a practical standpoint, this really is a change from 10k to 12k for single non-itemizers, not a doubling like everyone keeps saying, correct?

But aren't you picking up a $300 credit for each of a married couple?

 

[Hamlet]

But aren't you picking up a $300 credit for each of a married couple?

That is an odd little addition that I had missed. So for low income people, that would be worth a deduction of about 2.5k. For higher income, a lot less.

That credit disappears after five years according to what I’ve read now, correct?

 

[audreyh1]

Yeah, what's with that $300 credit thing? Kind of to ease people into the new deduction scheme?

 

[Bir48die]

We have become a nation of speculation. Plus no one wants to be affected by any changes. We all agree the tax law needs to be simplified but if it has anything to disrupt our status quo then we get upset. I don't know what the answer is. Many of the people on this forum game the system to get subsidies for the ACA Act yet have millions in assets. It is my personal opinion that we're all in this for ourselves. How this started in legislation could completely change. Special interests will tear this apart and once again it will be a fraction of what it was supposed to be. Welcome to politics.

 

[Winemaker]

It makes up for the personal exemption, but the 5 year thing phaseout may just be there for give/take in negotiations; this is still just a bill.

The problem with the tax code is that whether we believe it or not, it is meant to control our behavior/freedom. That is why it is so onerous. No matter what politicians do to tweak/ improve/screw up, they are controlling the winners, losers. Thus, whoever has the means or lack of means, can tweak/improve/ screw up their own situation.

Not meant to be political, but factual.

 

[43210]

The promoters of the bill need to explain how the elimination of personal exemptions is more than made up for by other changes. I'll reiterate this.

Now we see that parents' exemptions are being replaced by increased deduction, whereas kids' exemptions are being replaced by increasing the Child Tax Credit with a refundable and non-refundable part.

It's easy to see that the new standard deduction (for Single or MFJ) is more than the old standard deduction plus the personal exemptions for the "parent(s)/adult(s)". E.g. for MFJ $24,000 > $21,300 = $13,000+2*$4,150 (2018 numbers).

But that new increased standard deduction, doesn't also absorb the personal exemptions for the "kid(s)" (another $4,150 each).

That's because the personal exemptions for the "kid(s)", is instead being replaced by the "enhanced" Child/Family Tax Credit, even though partly non-refundable. In the 12% bracket the non-refundable $600 CTC per kid works exactly like a $5,000$ personal exemption per kid (which beats the current 2018 personal exemption of $4,150). (Also the "parent(s)/adult(s)" each get another non-refundable $300 which works exactly like an additional $2,500$ personal exemption each.)

So actually almost everyone in the old 10%-15% brackets or new 12% bracket (which is the majority) are moderately better off.

People in the 0% bracket are mostly unchanged, with large negative tax, e.g. MFJ+3 kids earning $24k pays no tax and gets back $6,444 EITC and $3k CTC, so $24k before tax, nets $33,444 after tax.

So almost everyone in the bottom 80% is the same or better off. But the bill proposers need to explain how the elimination of personal exemptions is more than made up for by the combination of new increased standard deduction and "enhanced" Child/Family Tax Credit.

 

[FIRE'd@51]

It's easy to see that the new standard deduction (for Single or MFJ) is more than the old standard deduction plus the personal exemptions for the "parent(s)/adult(s)". E.g. for MFJ $24,000 > $21,300 = $13,000+2*$4,150 (2018 numbers).

Also, under current tax policy, for MFJ with both spouses over 65, there is an additional $2.5K added to the standard deduction; so for them, the current standard deduction is actually $15.5K. Add 2 x 4.150 for two exemptions and the current standard deduction plus exemptions for these folks is $23.8K, essentially the same as the new $24K number.

 

[pj.mask]

I assume these child/family tax credits are phased out at higher incomes? It looks like families making over $260k are where you start getting hit (or single people over 200k) haven’t been able to see anything about head of household.

 

[Senator]

It is good to see this discussion. I really appreciated the link to the Kitces blog post. It looks like I will face higher federal and state taxes under the current proposal. Now to sit back and follow this as it evolves.

Virtually everyone SHOULD be paying higher taxes. In order for the Government to LBYM, there is a lot more revenue that needs to be generated.

I only wish it was a sales tax or a gasoline tax so everyone WOULD actually pay more. They could get rid of the disincentive to work, i.e. income tax.

Hopefully families getting the extra child care credits with eventually produce more taxpayers, but the way I see the future it's just more people I have to pay for...

 

[gerntz]

Virtually everyone SHOULD be paying higher taxes. In order for the Government to LBYM, there is a lot more revenue that needs to be generated.

False.

 

[gerntz]

I only wish it was a sales tax or a gasoline tax so everyone WOULD actually pay more. They could get rid of the disincentive to work, i.e. income tax.

True. Picks up cash economy folks.

 

[upset264]

I'll pay more

My arithmetic shows that all things being equal our modest Federal Income Tax burden would increase 38% next year due to loss of itemized deductions and an increase from 10 to 12% in the lowest rate.

I will happily accept this. Our federal tax system is an abomination of special interests and political paybacks. Where does congress get its power? Through the tax code. Why do lobbyists wine and dine them and contribute to their campaigns? To profit from it by extracting favorable tax breaks.

And I believe eliminating itemized deductions would eliminate a lot of cheating, or shall we say stretching the rules.

 

[golfnut]

A bit of clarification about my dad's situation;
He's retired state worker in California. He has Kaiser Senior Advantage (Medicare HMO). He has a pension of about $3,000, SS of about $1200 and soon a VA pension of $1,800. He is 85 years old with Alzheimers. He's totally dependent and according to the tax accountant, 100% of his income is used for medical, so he pays no income taxes. All his monthly income just barely covers his full time care at a facility. He has almost zero savings of any kind, less than $10,000 anyways. (Long story short, a couple of his grand daughters bilked him out of his savings including the sale of his home when he had to go into the memory care assisted living facility). If his income is going to be subject to federal income tax, he won't have enough to cover the expenses for where he lives now. It's been hard enough on us all to even have to send him to any place, but to have to move him would just seem cruel as he can't/wouldn't understand. My brother and I will probably make up the difference if Dad even lives long enough to see any tax changes that affect medical deductions. But even if he doesn't live that long, it doesn't mean there aren't a boat-load of other seniors who are in the same situation; can afford to pay their own way with the tax write offs for medical but would need to make major changes if taxed.
One thing his tax accountant told me is that I can probably write him off as a dependent on my taxes if I do have to cover his overages. Yes, he files as a single adult, but I have durable power of atty for his medical and financial.
Thanks for the replies. I appreciate the feedback. Other than his memory issues, he has peripheral neuropathy, arthritis, high blood pressure, high cholesterol and is treated for mild depression. He has outlived his two wives, neither of which he can tell you their names. He forgets who my wife is and while he knows I'm his son, he does forget my name occasionally. It's hard to see him degenerate this way, but it adds insult to injury if his medical condition is no longer a tax write off. I sure hope our representatives reconsider those with advanced age or severe disabilities when they make their law.

I just completed reading all the posts here. You and your brother must be going through alot here. Good Luck. I was going to comment on the grand daughters but I'll refrain before my Irish temper takes over. Given their heist, they should be helping out !

 

[pb4uski]

skipro33, sorry for your situation and I can see where the proposal is a big and adverse change for your dad and others who are similarly situated.

Is there any chance of suing those granddaughters who bilked him out of his life savings or make a criminal complaint? I'm sure that if it was a non-relative caregiver who have fleeced him that you would have gone after them. If they think they will be in legal peril perhaps they will volunteer to help out.

 

[ShokWaveRider]

Honestly, one part I like is that Mortgage Interest is being limited. I personally think it should be phased out completely.