A Guide to the Tax Changes

[bobpark56]

I'm suggesting to dh that we have our taxes figured using itemized deductions and just the standard deduction to see which way we come out better.

In theory, that's a good idea. In practice, it's a real pain in the fanny to try to gather all your 'deductible' expenses and figure out whether it's legal to deduct them or not. I'm guessing you have never personally tried to do this.

 

[Luanne]

In theory, that's a good idea. In practice, it's a real pain in the fanny to try to gather all your 'deductible' expenses and figure out whether it's legal to deduct them or not. I'm guessing you have never personally tried to do this.

We do have an accountant prepare our tax returns. However I DO collect all of our expenses and list them out for him. We probably could do our own taxes, but just feel "safer" having someone else do them as they keep up on the tax laws and changes. My dad did my taxes for years, he was an accountant.

 

[Brett]

You are considered RICH by the middle class American's standard. In a separate post you had indicated that you have multiple homes. We do not have issues with wealth disparity but this new tax law is not supposed to reduce taxes for the rich individuals, only for corporations.

yes, an article in the Wall Street Journal said the 20% tax deduction on pass through entities (sub chapter S, LLC, partnerships) was "tailor made" for the commercial real estate market.
"commercial real estate industry has hit a jackpot"
.
... a huge huge financial windfall for real estate developers
Buh-lieve Me !

 

[ecwinch]

Moderator Note: Just a friendly reminder from the mods, that political discussions are not permitted in any forum - including the TUG Lounge. While the new tax changes are not a political topic per se, when the discussion starts to drift to the politics of the new tax plan then is not appropriate for the forum.

 

[Brett]

Moderator Note: Just a friendly reminder for the mods, that political discussions are not permitted in any forum - including the TUG Lounge. While the new tax changes are not a political topic per se, when the discussion starts to drift to the politics of the new tax plan then is not appropriate for the forum.

right, you are only allowed to discuss the actual provisions of the new tax law and how they impact individuals and corporations .... certainly no political discussions are allowed here

 

[VacationForever]

This legislation is a trojan horse...while some of your taxes may go down for now, it will be more than offset by decreases to your Social Security, and increases to Medicare/Health plan costs to pay for the newly increased deficit spend from this legislation...just wait.

... and do you have DATA for this?

 

[wilma]

You are considered RICH by the middle class American's standard. In a separate post you had indicated that you have multiple homes. We do not have issues with wealth disparity but this new tax law is not supposed to reduce taxes for the rich individuals, only for corporations and middle class Americans.

Middle class incomes vary by state and calif has much higher middle class incomes compared to the US average, look it up.

 

[VacationForever]

Middle class incomes vary by state and calif has much higher middle class incomes compared to the US average, look it up.

I am well aware of that and I was from California and even paid CA's "Millionaire" tax penalty when it was made retroactive as I had sold a home overseas several months before and honestly reported the gains, paying both CA income tax and Federal capital gains tax. I was simply responding that from other posts by CalGalTraveler, she would fall under the wealthy category.

We now live in a no income tax state and with very low property tax. We consider ourselves higher middle class and by 2019, our taxes will likely be higher in the new tax system than the old. The new tax system is not supposed to benefit everyone.

 

[Conan]

This new tax law is not supposed to reduce taxes for the rich individuals, only for corporations.

I'm afraid that's not the intention nor the result if by rich you mean high-income.
The mean income to cross the line into the top 1% is somewhere around $500,000. The mean family income for everybody in the top 1% is nearer to $1,500,000.

Even if you're a married couple in the lower end of the 1% living in a no-tax state with say $400,000 of interest income and $400,000 of capital gains/qualified dividends, here's what the new law does for you (in addition to probably sparing you any estate tax exposure).

2017 (updated since I ran my estimates through Turbotax)
Adjusted gross income: $800,000
Deductions: $50,000 comprised of $20,000 real estate tax plus $30,000 charity
Deductions you're allowed: 35,414 because in your bracket some are phased out
Personal exemptions 0 (your income is too high so yours are phased out, which maybe explains why starting in 2018 everybody else in the US is losing theirs too)
Taxable income 764,586
Regular tax including cap gains/qualified dividends at favored rate 170,224
Alternative minimum tax 4,314
Net investment income tax 20,900
Total tax 195,438 (24.4% of 800,000)

2018
Adjusted gross income: $800,000
Deductions: $50,000 comprised of $20,000 real estate tax plus $30,000 charity
Deductions you're allowed: 40,000 because of the 10,000 cap on local tax (the phase out is repealed)
Personal exemptions 0 (repealed)
Taxable income 760,000
Regular tax including cap gains/qualified dividends at favored rate 136,000
(thanks to new lower brackets for ordinary income)
Alternative minimum tax 0
Net investment income tax 20,900
Total tax 157,000 (19.6% of 800,000)

Hey, you just got $38,000 richer!!


https://www.ineomobility.com/wp-content/uploads/2017/12/2018-Tax-Updates-2018-Federal-Tax-Info.pdf

 

[dioxide45]

I am not worrying about any of it. I am going to just do my taxes like I always do on Tax Act and whatever it is it is. I only am concerned that being in NY we lose the state and local tax exemption and property tax deductions are capped at $10,000. But what can I do about it? Nothing... until I can move the hell out of here.

I look at it the same way except I use Turbo Tax.

George

You won't need Tax Act or Turbo Tax. You will be able to do your taxes on a post card, remember?

 

[isisdave]

The new plan is not a better deal if you're a couple with more than two kids, or if either of the two is over 16, or if you're a single parent with more than one kid.

Remember, that $2000 tax credit is an increase from $1000, not a new feature, so you have to put it that way into the equation with SD increase, exemption decrease, and CTC increase. Folks point out that $1000 credit increase vs $4000 exemption decrease is a wash if you're in the 25% bracket, and that's true as long as your one or two kids are under 17. As I recall, they start costing a lot more when they go to college!

 

[rapmarks]

In theory, that's a good idea. In practice, it's a real pain in the fanny to try to gather all your 'deductible' expenses and figure out whether it's legal to deduct them or not. I'm guessing you have never personally tried to do this.

I have done both, spent an hour just doing charitable, and in the end, turbo tax told me I would be better with the standard deduction. I would guess that any accountant does both, or probably just eyeballs the documents and knows

 

[CalGalTraveler]

We now live in a no income tax state and with very low property tax. We consider ourselves higher middle class and by 2019, our taxes will likely be higher in the new tax system than the old. The new tax system is not supposed to benefit everyone.

LoL, if we were rich we would not be worrying about this. Like you, upper middle class would be most appropriate (yes we have one modest vacation home that is a rental), but we have worked hard all of our lives and saved. And No this was not handed to us on a platter.

The upper middle class in high tax states, (and possibly in low tax states too per @VacationForever note above) are realizing higher taxes and will be squeezed. So much for rewarding people for working hard and saving all of their lives.

 

[rapmarks]

I'm afraid that's not the intention nor the result if by rich you mean high-income.
The mean income to cross the line into the top 1% is somewhere around $500,000. The mean family income for everybody in the top 1% is nearer to $1,500,000.

Even if you're a married couple in the lower end of the 1% living in a no-tax state with say $400,000 of interest income and $400,000 of capital gains/qualified dividends, here's what the new law does for you (in addition to probably sparing you any estate tax exposure).

2017
Adjusted gross income: $800,000
Deductions: $50,000 comprised of $20,000 real estate tax plus $30,000 charity
Deductions you're allowed: 35,000 because in your bracket 15,000 are phased out
Personal exemptions 0 (your income is too high so yours are phased out, which maybe explains why starting in 2018 everybody else in the US is losing theirs too)
Taxable income 765,000
Tax on your interest income 120,000 (30%)
Tax on your qualified dividends 75,000 (19%)
Total tax 195,000 (25%)

2018
Adjusted gross income: $800,000
Deductions: $50,000 comprised of $20,000 real estate tax plus $30,000 charity
Deductions you're allowed: 40,000 because of the 10,000 cap on local tax (the phase out is repealed)
Personal exemptions 0 (repealed)
Taxable income 760,000
Tax on your interest income 82,000 (20% thanks to new lower brackets for ordinary income)
Tax on your qualified dividends 75,000 (the same 19% as before)
Total tax 157,000 (20%)

Hey, you just got $38,000 richer!!


https://www.ineomobility.com/wp-content/uploads/2017/12/2018-Tax-Updates-2018-Federal-Tax-Info.pdf

Thanks for the figures, I see no mention of the amt in these figures. What are the effects of amt in 2018

 

[WinniWoman]

You won't need Tax Act or Turbo Tax. You will be able to do your taxes on a post card, remember?

Yeah right. Where are these so called postcards for filing? ha! ha!

 

[CalGalTraveler]

... and do you have DATA for this?

Yes there is data. But as the moderator requested, I don't want to get political here. Just google what's being openly discussed for next year's legislative agenda.

 

[Roger830]

We live in a resort town where the population doubles in the summer.

There are ocean front houses that are usually empty with property tax of $20,000 to $50,000 per year. When those owners deduct those taxes, others pay more to make up for it.

The same is true for low tax states. Those residents pay a higher federal tax because residents in high tax states are not paying their fair share because of deductions.

 

[bluehende]

We like in a resort town where the population doubles in the summer.

There are ocean front houses that are usually empty with property tax of $20,000 to $50,000 per year. When those owners deduct those taxes, others pay more to make up for it.

The same is true for low tax states. Those residents pay a higher federal tax because residents in high tax states are not paying their fair share because of deductions.

The high tax states CA,NY, and NJ do not get back as much per dollar on their tax dollars than the low tax states. I do not live in a high tax state but that seems unfair also. They would argue that they pay more than their fair share.

 

[Conan]

Thanks for the figures, I see no mention of the amt in these figures. What are the effects of amt in 2018

The people in my example didn't pay much AMT in 2017 because they live in a no income tax state (and they don't have fancy tax preference items). I've updated my example to show their AMT.

The 2018 tax law keeps the AMT on paper, but limiting everyone's state and local tax deduction to $10,000 eliminates AMT for most regular people. You can think of the new law as "AMT-for-all," since the AMT for most of us who pay it works by taking away your state and local tax deductions and your personal exemptions. The new regular tax addresses that directly.

 

[WinniWoman]

The high tax states CA,NY, and NJ do not get back as much per dollar on their tax dollars than the low tax states. I do not live in a high tax state but that seems unfair also. They would argue that they pay more than their fair share.

Exactly.

 

[Roger830]

In our town we get very little back from the state, most of the money goes to the failed cities. Similar has been done at the federal level.

"From each according to his ability, to each according to his needs."

 

[bogey21]

I'm curious. What do the high tax states do with all the money? I live in Texas (no State Income tax; Property taxes on a $200,000 house less than $4,000; and a 8.25% Sales Tax) and we seem to get along just fine. One negative is recen increase in toll roads. But the money generated from taxes in high tax states must go somewhere.

George

 

[Roger830]

I'm curious. What do the high tax states do with all the money?
But the money generated from taxes in high tax states must go somewhere.
George

In Connecticut, we didn't have an income tax until about 25 years ago.

Now this year we had a $2 billion deficit in a $20 billion budget, looking at more deficits in the future.
Much of the blame is the underfunded pension system and the slow growth economy because of people and companies leaving the state.

 

[rapmarks]

The people in my example didn't pay AMT in 2017 because they live in a no income tax state (and they don't have fancy tax preference items).

The 2018 tax law keeps the AMT on paper, but limiting everyone's state and local tax deduction to $10,000 eliminates AMT for most regular people. You can think of the new law as "AMT-for-all," since the AMT for most of us who pay it works by taking away your state and local tax deductions and your personal exemptions. The new regular tax addresses that directly.

I do not itemize, I pay the amt. My income is from dividends, capital gain distributions, iras, annuities etc. some are from bonds, but not much.

 

[dioxide45]

I'm curious. What do the high tax states do with all the money? I live in Texas (no State Income tax; Property taxes on a $200,000 house less than $4,000; and a 8.25% Sales Tax) and we seem to get along just fine. One negative is recen increase in toll roads. But the money generated from taxes in high tax states must go somewhere.

George

That discussion would probably get political.