2018 Federal Income Tax Highlights

[rapmarks]

Did she make much during that calendar year? If she made very little, then she must not have filled the income question correctly to end up with $900 per month during the 4 months on ACA. I avoided going to Medicaid and filled out just sufficient to cross then 138% of poverty line to get the maximum subsidies for both premiums and out of pocket, aka cost sharing. We made good money in 2016 and I was asked to submit proof that my estimated income for 2017 would drop to where I reported. I submitted proof to satisfy them to get approved for paying at the lowest premium and maximum cost sharing subsidies.

Based on what you said, she probably over reported her income on her ACA marketplace application and if so, upon taxes being filed, she should be getting a tax rebate.

wasn’t actually on aca, and when she was let go in 2017 she received a lump sum and I think they asked her2017 income, which was higher than usual

 

[VacationForever]

System actually on aca, and when she was let go in 2017 she received a lump sum and I think they asked her 2017 income

There is also a question as to whether there is a change in income in 2018. She should have answered yes and put in her 2018 estimated income. ACA would have then asked her to submit document to show it. If she skipped the question in 2018, indicating that there was no change, that would have been how she ended up paying $900 per month in insurance premium. She should get a rebate if so.

 

[DavidnRobin]

That is my concern/hope that the amt will be less. Waiting for last broker statement

Under most circumstances it should be less. AMT is such a Blackbox for most - especially how it factors in for previous and future tax rates.

Overall - the tax rates have lowered (for most) since the tax rates decreased. The side missing us that the benefit is larger for those with more ‘wealth ‘.

Sure, low income folks do well tax-rate wise - but their savings are smaller compared to higher-wealth individuals since there is a base poverty rate and money is more valuable to them (this is not political - this is math - Emin modeling with poverty level as the base) as their are basic necessities to live (vs owning timeshares... etc).

What irks me is the comparison to last years ‘refunds’ in media coverage. When it should be overall tax rate.
Nobody managing their money well should get a refund - they should strive to break even (maximizing their tax rates) or owe without penalty.
I never understood this mentality- probably why so many have debt, or haven’t saved adequately.
IMO


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[Steve Fatula]

It is generally a wash.

Not seen anyone who got a wash. The folks I know, not in coastal states with SALT issues, all paid less. Quite a bit less.

The Tax Policy center says about 2/3 of Americans will pay less tax, and ~10% pay more. Note, this has *nothing* to do with refunds or owing. That is a separate issue, I've seen many articles confuse the difference.

 

[bogey21]

Are you writing off your donations, or donating w/o the Deduction?
Probably the former...

Both. I write off one big one and don't bother with all the others...

George

 

[DavidnRobin]

Both. I write off one big one and don't bother with all the others...

George

We have donated about half our stuff since Sept (sold home - downsizing) - MKondo would be sparkling with joy...

Looks like you are taking it then.
This is last donation write-off we have moving forward...
Good timing.
Now onto Tax Harvesting and Income Transition (converting IRA to Roth to take advantage of Tax Valley... the 12% to 22% tax rate jump, etc).

Bottom-line.
People within StdDed receive no tax benefit from donations (as previous - now just more in this category with new TaxAct).

People Itemizing Deductions do receive tax benefit from donations (regardless if they choose to or not)

People who use StdDed are generally in lower income group - and visa versa.











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[VacationForever]

People who use StdDed are generally in lower income group - and visa versa.

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How do you draw this conclusion?

 

[Talent312]

Just for the heck of it...
I just ran my taxes on Credit Karma's website.
I found it a bit short on hand-holding, but was comprehensive.
Unlike TaxAct + TurboTax, it's free, even for "deluxe" returns.
I could download + print a real return for -0-.

More importantly, it had the same result as TaxAct + TurboTax.
So, it's calculations seem to be accurate.

I haven't decided which I'll use to e-file... prolly TaxAct by habit.
.

 

[HitchHiker71]

Just for the heck of it...
I just ran my taxes on Credit Karma's website.
I found it a bit short on hand-holding, but was comprehensive.
Unlike TaxAct + TurboTax, it's free, even for "deluxe" returns.
I could download + print a real return for -0-.

More importantly, it had the same result as TaxAct + TurboTax.
So, it's calculations seem to be accurate.

I haven't decided which I'll use to e-file... prolly TaxAct by habit.
.

I tried CreditKarma vs Taxcut HR Block which I’ve used for several years now. CK did not handle rental properties nor small businesses very well IME. It’s probably just fine for folks who aren’t running multiple income streams though as it covered the normal W2 income streams just fine.

I’m in one of the SALT states in the northeast and took a fairly big hit on our itemized deductions as a result. Lost about 11k of deductions due to the 10K cap in place. In 2017 we owed about 2k, this year we owe about 8k - though we also had about 15k additional income year over year. I compared the taxes due between years and it came up to about 4.2k more for 2017 vs 2018. Our net taxable income was quite a bit higher due to the SALT cap this year - this was the single largest differentiator.

I just lowered my withholding allowance and upped my wife’s 401k contributions by quite a bit to both increase tax withholding and to decrease our net income for next year. Hopefully this will level out our taxes due next year.

At least we don’t owe state taxes this year - getting a small refund from state.


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[SmithOp]

She was told by agent that she would see on her income taxes where to get the rebate when filing taxes, and my sister went with her to ask the agent. She had cobra for eight months and a nine hundred a month plan with a big deductible for four months.

I think there is some confusion here between HCTC and PTC, they are not the same thing. Sounds like she had both and will need 2 forms.

HCTC is resolved when completing taxes using form 8885.
https://www.irs.gov/credits-deductions/individuals/hctc

PTC is resolved when completing taxes using form 8962.
https://www.irs.gov/forms-pubs/about-form-8962


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[VacationForever]

When you use Turbo Tax it should prompt you along for ACA Premium Tax Credit etc. I did that for 2017 returns and thought it was very straight forward.

 

[lovetotravel77]

First time in 36 years taking the standard deduction. We paid off our mortageand the SALT limitation of $10K is really hurting people in high income and real estate states, especially in the tri state area. There truthfully is no incentive to home ownership anymore, other than hoping for appreciation. When we downsize, we will rent and see how we like being tenants and leaving the "headaches" to the landlord.

 

[rapmarks]

I think there is some confusion here between HCTC and PTC, they are not the same thing. Sounds like she had both and will need 2 forms.

HCTC is resolved when completing taxes using form 8885.
https://www.irs.gov/credits-deductions/individuals/hctc

PTC is resolved when completing taxes using form 8962.
https://www.irs.gov/forms-pubs/about-form-8962


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Thanks for the links but I am confused as to which she should use. She paid for cobra first eight months and the other plan for four months. The PTC never came up or I incorrectly answered a question. I believe the only form she received was for the four months, she says she never received anything from cobra. This is compounded by her not sending me all her paperwork and not even knowing what she should give me.

 

[SmithOp]

Thanks for the links but I am confused as to which she should use. She paid for cobra first eight months and the other plan for four months. The PTC never came up or I incorrectly answered a question. I believe the only form she received was for the four months, she says she never received anything from cobra. This is compounded by her not sending me all her paperwork and not even knowing what she should give me.

The COBRA may qualify her for HCTC if she meets the requirements. No form is sent, she has to provide you with her own records for COBRA payments.

If the other plan was purchased through the Affordable Care Marketplace she would have received a 1095-A, those numbers are used to complete the 8962. The IRS has the 1095-A data and if her return is filed without an 8962 she will get a letter from IRS to submit the form before any refund is paid.


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[rapmarks]

She received 1095b that she told me about so I was incorrect to take the form 8885 health care tax credit. How would I find the ptc and what would I need to get that credit

 

[HitchHiker71]

First time in 36 years taking the standard deduction. We paid off our mortageand the SALT limitation of $10K is really hurting people in high income and real estate states, especially in the tri state area. There truthfully is no incentive to home ownership anymore, other than hoping for appreciation. When we downsize, we will rent and see how we like being tenants and leaving the "headaches" to the landlord.

We still itemized this year but interestingly enough with the 10K SALT cap our itemized deductions fell to just over the 24k mark, so I anticipate next year it actually come in under 24k given we will have less mortgage interest to deduct each year, unless something happens with the tax laws to change the SALT cap.

This means next year we will most likely take the standard deduction all things being equal. This also means the mortgage interest deduction is no longer of any real tax value for us and I suspect for many others as well. This would appear to deemphasize home ownership yes?

It will be interesting to see how the new tax law impacts home ownership. Mortgage app volumes have fallen quite a bit over the past year, I’m thinking this may have something to do with it.

We have considered focusing on paying off our mortgage over the next several years even before finalizing our taxes this year. Why pay all that interest if there’s no tax advantage left now? Our mortgage is at 3.75% fixed 30 year so our rate is really low and we should easily be able to beat that if we invested the monies from a ROR standpoint. That said we would be saving a ton on interest payments over time and recovering a significant amount of money into our monthly budget without any mortgage payment.

Or do we simply pay down the existing mortgage now and refinance the remaining balance to lower our payment significantly? We could refi the remaining balance over 15 years at the same rate we have now and still have a much lower payment than we do today. I need to run the numbers to determine how to proceed. Lots of options.



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[VacationForever]

We still itemized this year but interestingly enough with the 10K SALT cap our itemized deductions fell to just over the 24k mark, so I anticipate next year it actually come in under 24k given we will have less mortgage interest to deduct each year, unless something happens with the tax laws to change the SALT cap.

This means next year we will most likely take the standard deduction all things being equal. This also means the mortgage interest deduction is no longer of any real tax value for us and I suspect for many others as well. This would appear to deemphasize home ownership yes?

It will be interesting to see how the new tax law impacts home ownership. Mortgage app volumes have fallen quite a bit over the past year, I’m thinking this may have something to do with it.

We have considered focusing on paying off our mortgage over the next several years even before finalizing our taxes this year. Why pay all that interest if there’s no tax advantage left now? Our mortgage is at 3.75% fixed 30 year so our rate is really low and we should easily be able to beat that if we invested the monies from a ROR standpoint. That said we would be saving a ton on interest payments over time and recovering a significant amount of money into our monthly budget without any mortgage payment.

Or do we simply pay down the existing mortgage now and refinance the remaining balance to lower our payment significantly? We could refi the remaining balance over 15 years at the same rate we have now and still have a much lower payment than we do today. I need to run the numbers to determine how to proceed. Lots of options.



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We are firm believers of having no debt so we always try to not take a loan, whether in buying a car or a house. We feel that the new Tax law negatively affects the upper middle income. For most of us, we benefit from the new tax law.

 

[DavidnRobin]

If you are into AMT - the $10K SALT limit is not as impactful.


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[HitchHiker71]

We are firm believers of having no debt so we always try to not take a loan, whether in buying a car or a house. We feel that the new Tax law negatively affects the upper middle income. For most of us, we benefit from the new tax law.

That’s always a good ideal to take and I agree in principle. Unfortunately on the coasts with our inflated real estate prices most everyone would never own a home at all as it would take decades to save that kind of money to pay in full. Meanwhile our rent prices are increasing significantly which makes it difficult for folks to save for a home at the same time. As a rental property owner we have increased our rent on our units over the past several years by over 25% easily while enjoying all time lows on interest rates which have maximized our rental unit income potentials. In some ways I really feel bad for the millennials as they are stuck living with major financial imbalances with respect to incomes vs expenses.

Based on my experience I would agree with you on the negative affects for the upper middle income earners. This is mostly due to the SALT cap though. I suspect there will be debate soon on loosening the SALT caps since the coasts have a ton of influence from a political and lobbying standpoint.


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[Miss Marty]

How does the SALT Deduction Work?

Under the new plan, taxpayers who itemize
will be able to deduct their state individual
income, sales and property taxes up to a
Limit of $10,000 in Total starting in 2018.

https://money.cnn.com/2017/12/20/pf/salt-deductions-new-tax-plan/index.html

 

[HitchHiker71]

How does the SALT Deduction Work?

Under the new plan, taxpayers who itemize
will be able to deduct their state individual
income, sales and property taxes up to a
Limit of $10,000 in Total starting in 2018.

https://money.cnn.com/2017/12/20/pf/salt-deductions-new-tax-plan/index.html

Very good article, so there’s a marriage penalty involved here:

Married couples get less of a benefit with the new SALT deduction since the limit is the same for both single and married filers.

"This is pretty clearly a marriage penalty," said Faulhaber from Georgetown. "If you have two unmarried taxpayers both paying $10,000 in SALT, they will get an aggregate $20,000 when they file, whereas if they get married they suddenly lose $10,000 in deductions."

If we were able to deduct 20k as a married couple instead of 10K we would not have had a higher tax burden this year when compared to last year.


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[Steve Fatula]

If we were able to deduct 20k as a married couple instead of 10K we would not have had a higher tax burden this year when compared to last year.

That is true, but it is also true that we who choose to live in lower tax states, which are generally also poorer states would then be subsidizing you in essence.

 

[Sea Six]

The standard deduction is now so high there is no motivation to carry a mortgage or make charitable donations. We don't even have a state income tax. I haven't taken the standard deduction since I was in my early 20's.

 

[SmithOp]

She received 1095b that she told me about so I was incorrect to take the form 8885 health care tax credit. How would I find the ptc and what would I need to get that credit

Everybody with healthcare gets a 1095b, its just evidence of coverage with the months marked. There is also a 1095c Offer of Coverage from Employer.

If she purchased Affordable Care a 1095a would have been sent by now, she needs to contact her State office to get a copy. That data feeds the 8962. It could be a credit or a penalty, if you estimate low on your income when you sign up for ACA part of the subsidy has to be repaid. If you estimate high, you get a credit.


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[bluehende]

That is true, but it is also true that we who choose to live in lower tax states, which are generally also poorer states would then be subsidizing you in essence.

The only problem is that those states give much more to the federal government than they get back even with the full deduction. They have been subsidizing poorer states for a long time and now will subsidize even more. I come from a large donor state and to say that poor states have been subsidizing us because we could deduct our state taxes is just dead wrong.