Please Post Tax Bill Questions Here [was Tax Bill Omnibus Thread]

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
rkhusky
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Re: Tax Bill Omnibus Thread

Post by rkhusky » Thu Dec 21, 2017 11:45 am

mffl wrote:
Wed Dec 20, 2017 2:51 pm
rkhusky wrote:
Wed Dec 20, 2017 2:25 pm
Those with children will probably find that their marginal rate is increasing, even if their taxes go down. The Child Tax Credit is applied after taxes are computed, whereas the disappearing exemptions were applied before taxes were computed.
Perhaps. The top of the 10% and 12% (was 15%), and 22% (was 25%) brackets aren't moving much, but the top of the 24% (was 28%) moves up quite a bit.
It depends on the number of children and how close you were to the boundary. Taxable income will be rising for those with 2 or more children, all else being equal.
Last edited by rkhusky on Thu Dec 21, 2017 11:50 am, edited 1 time in total.

rkhusky
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Re: Tax Bill Omnibus Thread

Post by rkhusky » Thu Dec 21, 2017 11:49 am

Although the new tax bill is eliminating exemptions on the tax forms, I expect there to still be exemptions in the W4. For those that use their withholding as a savings account, there should be little difference. Likewise for those of us who estimate our taxes in advance and whose W4 exemptions have little to do with the exemptions on our tax forms, there should be little difference in procedures.

Bacchus01
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Re: Tax Bill Omnibus Thread

Post by Bacchus01 » Thu Dec 21, 2017 11:54 am

rkhusky wrote:
Thu Dec 21, 2017 11:49 am
Although the new tax bill is eliminating exemptions on the tax forms, I expect there to still be exemptions in the W4. For those that use their withholding as a savings account, there should be little difference. Likewise for those of us who estimate our taxes in advance and whose W4 exemptions have little to do with the exemptions on our tax forms, there should be little difference in procedures.
If exemptions are eliminated, why would they exist on the W4? They have no meaningful reference point. Say I put a 3 on the form, what tax code does the software reference to tell me what a 3 means in terms of tax rates?

It might ask you to enter status (S, MFJ, etc) along with number of dependents for CTC estimates, but beyond that it’s going to have to calculate based on annualized income rates and projected marginal rates. It won’t take into account anything off payroll, as it doesn’t now. You will then be able to withhold more, but I’m unclear how you will tell it to do less. We’ll have to wait and see.

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mrc
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Re: Tax Bill Omnibus Thread

Post by mrc » Thu Dec 21, 2017 11:59 am

Bacchus01 wrote:
Thu Dec 21, 2017 11:54 am
rkhusky wrote:
Thu Dec 21, 2017 11:49 am
Although the new tax bill is eliminating exemptions on the tax forms, I expect there to still be exemptions in the W4. For those that use their withholding as a savings account, there should be little difference. Likewise for those of us who estimate our taxes in advance and whose W4 exemptions have little to do with the exemptions on our tax forms, there should be little difference in procedures.
If exemptions are eliminated, why would they exist on the W4? They have no meaningful reference point. Say I put a 3 on the form, what tax code does the software reference to tell me what a 3 means in terms of tax rates?

It might ask you to enter status (S, MFJ, etc) along with number of dependents for CTC estimates, but beyond that it’s going to have to calculate based on annualized income rates and projected marginal rates. It won’t take into account anything off payroll, as it doesn’t now. You will then be able to withhold more, but I’m unclear how you will tell it to do less. We’ll have to wait and see.
The number on the W4 is properly called allowances and not exemptions. Line H "This may be different from the number of exemptions you claim on your tax return"
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kenyan
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Re: Tax Bill Omnibus Thread

Post by kenyan » Thu Dec 21, 2017 12:02 pm

People should be re-examining whether or not to prepay their mortgage, at least if they are potentially in a position to do so. Switching from itemization of deductions to standard deduction completely nullifies any benefit of mortgage interest deductibility. In addition, the increase in the standard deduction may be significantly increasing your effective mortgage interest rate, even if you will still be itemizing. There will be few people who would continue to itemize without mortgage interest, which is the requirement for considering your effective interest rate to be based upon full deductibility.

For myself, my mortgage interest will be transitioning from a fully deductible rate (SALT + property taxes + charitable contributions over standard deduction) to negligible benefit (only will be a couple thousand over the standard deduction). Decisions made about whether or not to prepay will be considered at the full rate.
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KATNYC
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Re: Tax Bill Omnibus Thread

Post by KATNYC » Thu Dec 21, 2017 12:04 pm

Artsdoctor wrote:
Thu Dec 21, 2017 11:44 am
KATNYC wrote:
Thu Dec 21, 2017 10:40 am
This is so frustrating. Doing something like this right at Christmas when many people are traveling (including accountants) is asinine and forcing many of us to scramble to confirm details and make prepayments of taxes (if imposed), prepay mortgages, or set up donor-advised funds for charities all while getting ready to host or travel for the holiday.
KAT,

This law was not designed to benefit you, per se . . . I'm going to guess that no one really cared much about taxpayer inconvenience and the effect this would have on holiday enjoyment.

All of that said, I can't remember the last time there wasn't a mad dash to do end-of-year tax planning. I usually start entering data into Turbo Tax when it becomes available around Thanksgiving and then begin projecting when it's profitable to take income and expenses--this year or next year. The last week of December has always been chaotic.

There are several online calculators which will give you an idea of what your 2018 maginal tax rate might be. This can help you decide where your income and expenses might do you more good, and then move your money as much as you can. The one thing that a lot of people are forgetting to do is to take their current AMT status into consideration when comparing existing and new laws, so keep that in mind if applicable.
Yes, I've pulled 2016 taxes & most recent statements to make some decisions using a few different calculators.
Our accountant is getting multiple calls per hour from clients.

Grogs
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Re: Tax Bill Omnibus Thread

Post by Grogs » Thu Dec 21, 2017 12:09 pm

KATNYC wrote:
Thu Dec 21, 2017 11:16 am
Extra payments go toward the next month(s) due in some cases if you do not specify that the extra payment(s) is for the principal.
The Wizard wrote:
Thu Dec 21, 2017 11:07 am
BackOfTheNet wrote:
Thu Dec 21, 2017 10:34 am
Da5id wrote:
Thu Dec 21, 2017 10:32 am
Unless you have an interest only loan, 4% of 400k mortgage isn't 16K interest. A chunk of that is principle...
His payment might be higher than $16k but a 4% loan on a $400k mortgage is roughly $16k interest.
I don't think it's possible to pay interest ahead of time nowadays.
Interest accrues strictly with the passage of time, day by day as a practical matter.
Any extra payments go to reduce the principal amount of the loan...
Right, or if you've already made a full payment. I did that by accident last year and made two payments for the month of November on 11/1 and 11/2. They credited the second payment against December. I believe that mortgages are peculiar in that the interest is always treated as if you had paid on the due date. In my case, even though the Dec payment was made one day after the November one, a full month of interest was charged.

NOgmacks
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Re: Tax Bill Omnibus Thread

Post by NOgmacks » Thu Dec 21, 2017 12:10 pm

I have done a backdoor Roth conversion for 2017. Two questions.

1. Should I keep it for this year 2017 and just file 8606s?
2. Can we still do backdoor Roth in 2018? I usually front load and convert in the first week of January. Can I still do that? What are the implications?

mbres60
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Re: Tax Bill Omnibus Thread

Post by mbres60 » Thu Dec 21, 2017 12:11 pm

It is unclear to me if I can prepay property tax for 2018 if I have not yet been assessed. My county assesses every three years. I think my area is due for a new assessment in 2018. Once assessed the bill is dated July 1. They are making an exception this year to allow people to prepay but I don't know if the IRS will allow it if I have not been assessed yet.

The Wizard
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Re: Tax Bill Omnibus Thread

Post by The Wizard » Thu Dec 21, 2017 12:15 pm

The Wizard wrote:
Thu Dec 21, 2017 11:25 am
mega317 wrote:
Thu Dec 21, 2017 10:53 am
KATNYC wrote:
Thu Dec 21, 2017 10:40 am
forcing many of us to scramble
To be fair no one is forcing us to do these little tax tricks.
I'm not planning anything tricky for the rest of the year myself.

Once I e-file my 2017 1040 in February, I'll play with Excel and project what my Federal tax liability would have been under the new tax law. (My 2018 income and deductions should be quite similar to 2017.)
Depending on the outcome of that exercise, I may adjust my withholding for future income...
Ok, I lied.

I'm just back from a quick trip to Town Hall where I paid the $4200 remaining on my fiscal 2018 property tax, normally due in February and May.
I feel all better now...
Attempted new signature...

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MP123
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Re: Tax Bill Omnibus Thread

Post by MP123 » Thu Dec 21, 2017 12:17 pm

Rarely mentioned are the changes to Kiddie Tax.

If you have a child or young adult with significant unearned income they will no longer be taxed on it at your highest marginal rate. Instead my understanding is that they will be taxed at the Trust and Estate rates which top out at 37%.

This is actionable for this year because you may wish to accelerate or delay gains for them depending on your current tax bracket.

Tigermoose
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Re: Tax Bill Omnibus Thread

Post by Tigermoose » Thu Dec 21, 2017 12:23 pm

FrugalProfessor wrote:
Thu Dec 21, 2017 8:38 am

Going forward you'll only be able to exceed the $24k by $6k ($10k + $10k + $10k - $24k). As a result, your tax benefit going forward to all your benefits is your future effective marginal tax rate (EMTR_future) * $6k each year.

If you front load your DAF, you'll harness $30k*EMTR_today in benefits.

The math says to front load when $30k*EMTR_today > $18k*EMTR_future. For reference, my EMTR_today = 32.5% and my EMTR_future = 24%, so using my numbers I'd come out $5.4k ahead by doing DAF fund now.

DAF's are less expensive than you think. Fidelity's is only 0.6%. Further, you can invest in their institutional class indexes with expense ratios of 0.015%. Further, you avoid the tax drag of dividends by sheltering (easily equaling 0.3% (0.15%*2% div yield)).

If your confused about your EMTR today and in future, play around with my tax calculators I linked to at the bottom of this post: https://www.frugalprofessor.com/model-o ... ompromise/.
Thank you so much. Based on your advice and the advice of others we have setup a DAF with Fidelity and made a contribution.

:sharebeer :moneybag :moneybag :moneybag :sharebeer
Institutions matter

jimmyrules712
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Re: Tax Bill Omnibus Thread

Post by jimmyrules712 » Thu Dec 21, 2017 12:24 pm

Anyone know if they retained or got rid of the deduction for employer adoption assistance? I know at one point it was planned to be removed but I don't know where it landed. I have an adoption being finalized next year and this would impact me.

Overall looks like with the lower brackets and higher child tax credit my tax bill is going down about $3,500. Can't complain about that but am concerned on what this is going to do to the federal deficit.

overthought
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GOP tax reform: FIFO rule in or out?

Post by overthought » Thu Dec 21, 2017 12:36 pm

Now that the tax bill has passed, I'm having trouble determining whether the senate's proposed FIFO rule for sale of shares was part of the final deal. An article at the Motley Fool suggests the proposed change was ultimately discarded from the combined bill, but it didn't cite any sources and my Google-foo is too weak to turn up anything more conclusive.

pshonore
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Re: Tax Bill Omnibus Thread

Post by pshonore » Thu Dec 21, 2017 12:40 pm

mbres60 wrote:
Thu Dec 21, 2017 12:11 pm
It is unclear to me if I can prepay property tax for 2018 if I have not yet been assessed. My county assesses every three years. I think my area is due for a new assessment in 2018. Once assessed the bill is dated July 1. They are making an exception this year to allow people to prepay but I don't know if the IRS will allow it if I have not been assessed yet.
I think "assessed" is a misnomer. All property on the tax rolls have been assessed. Assessments are updated periodically (yearly, every 5 years, upon sale, etc). I think the key is has a mill rate been set for the period in question? That what determines tax due

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triceratop
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Re: GOP tax reform: FIFO rule in or out?

Post by triceratop » Thu Dec 21, 2017 12:41 pm

overthought wrote:
Thu Dec 21, 2017 12:36 pm
Now that the tax bill has passed, I'm having trouble determining whether the senate's proposed FIFO rule for sale of shares was part of the final deal. An article at the Motley Fool suggests the proposed change was ultimately discarded from the combined bill, but it didn't cite any sources and my Google-foo is too weak to turn up anything more conclusive.
I merged your thread into this one. To answer your question, no, the FIFO rule is not in the final bill. Here is coverage from when the Senate dropped the provision. I don't believe the House bill ever included it.
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nolesrule
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Re: Tax Bill Omnibus Thread

Post by nolesrule » Thu Dec 21, 2017 12:46 pm

arsenalfan wrote:
Thu Dec 21, 2017 10:59 am

While we are planning to prepay some of our intended 2018 charitable donations before the end of the year, It's likely going forward that at least half of the money we would normally budget during the year for charitable donations will go toward paying down the mortgage instead, as we'd no longer get a tax benefit from either... where this year it's a significant tax benefit.

Our SALT + mortgage interest would have been about $26400 next year, but under the SALT cap it would be $16,800.

You still will get the mortgage interest deduction going forward - I guess you're saying you won't be itemizing since standard deduction is better, and hence property tax deduction is meaningless?
The cap on SALT including property taxes when combined with the increase in the standard deduction makes the mortgage interest deduction meaningless since we will no longer be able to itemize. If they hadn't instituted the SALT cap then at least part of the mortgage interest would have been deductible above the standard deduction by being able to itemize.
Last edited by nolesrule on Thu Dec 21, 2017 12:50 pm, edited 1 time in total.

arsenalfan
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Re: Tax Bill Omnibus Thread

Post by arsenalfan » Thu Dec 21, 2017 12:47 pm

harikaried wrote:
Thu Dec 21, 2017 11:41 am
arsenalfan wrote:
Thu Dec 21, 2017 10:52 am
On average Schedule A is about $100k per year for me - includes $60k SALT and $16k property tax. I understand my top bracket is now 37% - I guess that more than offsets the loss of $50k SALT deduction?
Is that $100k itemized pre-Pease?

If your income is around $700k married, your old ~$85k post-Pease deductions at 39.7% marginal rate would have saved $34k. The new deductions would be capped around $35k at 37% rate reducing taxes about $13k, and also the roughly 3% lower tax rate reduces taxes by about $20k. Those are pretty ballpark, but $34k before and $33k after seems pretty close. Although you probably need to consider AMT..?
IDK TurboTax says I'm out of AMT - have never been hit by that...I guess I will just go with TaxCaster for next year.

Not sure what moves to make this year, other than give to DAF and prepay property tax for 2018 (county setting up a mechanism for that).

For Jimmy Rules: I googled it and found

"The final bill does not include other changes proposed in the House bill, including those affecting education assistance programs, adoption assistance programs, dependent care assistance programs, and employer-provided housing."

Source:
https://www.lexology.com/library/detail ... 1e03a27a3d

nyclon
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Re: Tax Bill Omnibus Thread

Post by nyclon » Thu Dec 21, 2017 12:48 pm

grabiner wrote:
Wed Dec 20, 2017 9:49 pm
The most important concerns for investors are to determine whether you will take the standard deduction, and recheck your marginal tax rate.

...
If you will take the standard deduction in 2018 but not in 2017, make deductions this year. Pay your January 2018 estimated tax in December. Donate more to charity this year and less next year.
...
Does paying estimated tax in December vs January 2018 apply to both state and federal tax, or just state?

I have a large, anomalous capital gain this year for which I was planning to pay the tax in April. But it seems like I should pay in 2017 in order to itemize; having said that, I don't know if there's benefit to paying the federal tax in 2017 - but I know paying the state tax in 2017 means a deduction via itemization on 2017 forms.

It's likely we'll take the $24k std deduction in 2018 - our state tax far exceeds $24k.

Any advice is appreciated, thanks!

omgbirdman
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Re: Tax Bill Omnibus Thread

Post by omgbirdman » Thu Dec 21, 2017 12:51 pm

nyclon wrote:
Thu Dec 21, 2017 12:48 pm

Does paying estimated tax in December vs January 2018 apply to both state and federal tax, or just state?

I have a large, anomalous capital gain this year for which I was planning to pay the tax in April. But it seems like I should pay in 2017 in order to itemize; having said that, I don't know if there's benefit to paying the federal tax in 2017 - but I know paying the state tax in 2017 means a deduction via itemization on 2017 forms.

It's likely we'll take the $24k std deduction in 2018.

Any advice is appreciated, thanks!
State tax only. Federal tax is not deductible in any regard.

nyclon
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Re: Tax Bill Omnibus Thread

Post by nyclon » Thu Dec 21, 2017 12:54 pm

omgbirdman wrote:
Thu Dec 21, 2017 12:51 pm
nyclon wrote:
Thu Dec 21, 2017 12:48 pm

Does paying estimated tax in December vs January 2018 apply to both state and federal tax, or just state?

I have a large, anomalous capital gain this year for which I was planning to pay the tax in April. But it seems like I should pay in 2017 in order to itemize; having said that, I don't know if there's benefit to paying the federal tax in 2017 - but I know paying the state tax in 2017 means a deduction via itemization on 2017 forms.

It's likely we'll take the $24k std deduction in 2018.

Any advice is appreciated, thanks!
State tax only. Federal tax is not deductible in any regard.
Thank you - very helpful. Wasn't sure if I was missing anything.

Gleevec
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Re: Tax Bill Omnibus Thread

Post by Gleevec » Thu Dec 21, 2017 1:02 pm

So for those of us with "side hustle" 1099 income (eg solo consulting, separate from our W2 day job wages) who are excluded from pass through tax relief, does it make any sense to become a C-corp?

cherijoh
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Re: Tax Bill Omnibus Thread

Post by cherijoh » Thu Dec 21, 2017 1:03 pm

whodidntante wrote:
Wed Dec 20, 2017 10:47 pm
– Flexibility To Roll Over 401(k) Loans After Termination. One of the big “risks” of taking a loan from a 401(k) plan is that many plans require that the loan be immediately repaid if the employee separates from service (or face adverse tax consequences). And may even require repayment if the plan terminates (e.g., the employer goes out of business). Under TCJA, though, a “qualified plan loan offset” amount for a terminated 401(k) loan is eligible for rollover within 60 days, essentially providing an (ex-)employee more time to repay the loan (directly into a rollover IRA) to avoid the tax consequences of non-repayment.

:happy :beer
I'm not sure many companies were Draconian enough to require immediate repayment of loans. My Megacorp already gave employees 60 days to repay a 401k loan.

If you are leaving the job because of a layoff, I'm not sure that guaranteeing a 60-day repayment window eliminates the risk you describe in your post.

arsenalfan
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Re: Tax Bill Omnibus Thread

Post by arsenalfan » Thu Dec 21, 2017 1:04 pm

nolesrule wrote:
Thu Dec 21, 2017 12:46 pm
arsenalfan wrote:
Thu Dec 21, 2017 10:59 am
While we are planning to prepay some of our intended 2018 charitable donations before the end of the year, It's likely going forward that at least half of the money we would normally budget during the year for charitable donations will go toward paying down the mortgage instead, as we'd no longer get a tax benefit from either... where this year it's a significant tax benefit.

Our SALT + mortgage interest would have been about $26400 next year, but under the SALT cap it would be $16,800.

You still will get the mortgage interest deduction going forward - I guess you're saying you won't be itemizing since standard deduction is better, and hence property tax deduction is meaningless?
[/quote]

The cap on SALT including property taxes when combined with the increase in the standard deduction makes the mortgage interest deduction meaningless since we will no longer be able to itemize. If they hadn't instituted the SALT cap then at least part of the mortgage interest would have been deductible above the standard deduction by being able to itemize.
[/quote]


Thank you for clarifying - it educates me. I am in Maryland, and do my own taxes. As I understand it, I will probably take the improved 2018 fed standard deduction, BUT the Maryland state standard deduction is low. Guess I will trust TurboTax and run both scenarios to see which is the better route for me.

If it turns out standard deduction is the way to go, I wonder where to put aftertax money: 529 (we have 2nd and 6th grader in private school and now can take $10k out per year from 529 to pay for that) vs pay down mortgage principle vs aftertax growth for retirement.

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BolderBoy
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Re: Tax Bill Omnibus Thread

Post by BolderBoy » Thu Dec 21, 2017 1:06 pm

Stormbringer wrote:
Thu Dec 21, 2017 7:15 am
This whole notion of prepaying 2018 property taxes and taking the deduction in 2017 seems sketchy to me. IRS Pub 17 says:
The following two tests must be met for you to deduct any tax.
  • The tax must be imposed on you.
  • You must pay the tax during your tax year.
The tax must be imposed on you. In general, you can deduct only taxes imposed on you.
Unless you have a tax bill in hand in 2017 for your 2018 property taxes, the IRS may argue that the tax has not been imposed on you yet. There is legal precedent for disallowing a deduction for prepaid property taxes.

Had Congress explicitly allowed it, it would be a different matter. Rather, they omitted some words and people are interpreting that as a loophole.
You bring up an interesting point. In Colorado generally, the tax assessment has been made (in their computers) by the last week of December. Strictly speaking, property tax (in Colorado) isn't assessed against any person directly, but against the property itself and basically offered to the current owner to be paid in lieu of confiscation of the property (if you don't believe this, simply don't pay the tax and see what happens to the property ownership).

Back on point. So I can call my local county treasurer on Dec 26, give them the requisite info and tell them I want to prepay my prop tax for 2018. They prepare a combined "assessment statement" (a tax bill such as you asked about) and receipt for payment dated in 2017. Tax paid, IRS doesn't complain, County happy for the early payment.

(when I was in the treasurer's office the last week of December a couple of years ago I commented on their lack of busy-ness and was told that almost no one comes into the office that week except for the property tax pre-payers)
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

NorCalDad
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Re: Tax Bill Omnibus Thread

Post by NorCalDad » Thu Dec 21, 2017 1:11 pm

miamivice wrote:
Thu Dec 21, 2017 10:42 am
I don't know if it's been said above (didn't read all 412 posts) but the thing I find most interesting about the new tax plan is that few people will itemize.

A $24,000 standard deduction is huge. It takes a lot of donations + taxes + interest in order to justify itemizing.

The takeaway on that is that most charitable donations (cash or goods) from regular people will no longer be tax deductible. I am curious to see if this has much impact on charitable donations that are received by non-profits. In particular, we used to get a nice tax writeoff for donating items to thrift stores.

Will be interesting to see the implication on non-profits.
I have a feeling people will still donate items to thrift stores. I mean, what else are they going to do with all of that stuff? Have more garage sales?

But charities that rely on smaller cash donations from mid- to upper-middle-class taxpayers might be nervous. I wonder if such charities will still use the "tax-deductible" phrasing. I've noticed many refer to something like "tax-deductible to the full extent allowed by law," so maybe they'll stick to that.

Nutmeg
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Re: Tax Bill Omnibus Thread

Post by Nutmeg » Thu Dec 21, 2017 1:21 pm

nyclon wrote:
Thu Dec 21, 2017 12:54 pm
omgbirdman wrote:
Thu Dec 21, 2017 12:51 pm
nyclon wrote:
Thu Dec 21, 2017 12:48 pm

Does paying estimated tax in December vs January 2018 apply to both state and federal tax, or just state?

I have a large, anomalous capital gain this year for which I was planning to pay the tax in April. But it seems like I should pay in 2017 in order to itemize; having said that, I don't know if there's benefit to paying the federal tax in 2017 - but I know paying the state tax in 2017 means a deduction via itemization on 2017 forms.

It's likely we'll take the $24k std deduction in 2018.

Any advice is appreciated, thanks!
State tax only. Federal tax is not deductible in any regard.
Thank you - very helpful. Wasn't sure if I was missing anything.
Paying estimated federal tax due in 2017 rather than 2018 could help you avoid underpayment penalties.

Da5id
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Re: Tax Bill Omnibus Thread

Post by Da5id » Thu Dec 21, 2017 1:24 pm

NorCalDad wrote:
Thu Dec 21, 2017 1:11 pm
I have a feeling people will still donate items to thrift stores. I mean, what else are they going to do with all of that stuff? Have more garage sales?

But charities that rely on smaller cash donations from mid- to upper-middle-class taxpayers might be nervous. I wonder if such charities will still use the "tax-deductible" phrasing. I've noticed many refer to something like "tax-deductible to the full extent allowed by law," so maybe they'll stick to that.
Maybe a problem, we'll see. I imagine if my total tax burden is the same or less my charity contributions will stay the same. If my tax burden rises I may have to evaluate. Fact that contributions are deductible never set my levels anyway (biggest contribution is deductible portion of temple membership, where I'm not really picking an amount anyway).
Last edited by Da5id on Thu Dec 21, 2017 1:25 pm, edited 1 time in total.

daveydoo
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Re: Tax Bill Omnibus Thread

Post by daveydoo » Thu Dec 21, 2017 1:25 pm

NorCalDad wrote:
Thu Dec 21, 2017 1:11 pm

But charities that rely on smaller cash donations from mid- to upper-middle-class taxpayers might be nervous. I wonder if such charities will still use the "tax-deductible" phrasing. I've noticed many refer to something like "tax-deductible to the full extent allowed by law," so maybe they'll stick to that.
I think you are correct on both counts. This is a very-much-intended "unintended consequence."
"I mean, it's one banana, Michael...what could it cost? Ten dollars?"

jst
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Re: Tax Bill Omnibus Thread

Post by jst » Thu Dec 21, 2017 1:26 pm

kenyan wrote:
Thu Dec 21, 2017 12:02 pm
People should be re-examining whether or not to prepay their mortgage, at least if they are potentially in a position to do so. Switching from itemization of deductions to standard deduction completely nullifies any benefit of mortgage interest deductibility. In addition, the increase in the standard deduction may be significantly increasing your effective mortgage interest rate, even if you will still be itemizing. There will be few people who would continue to itemize without mortgage interest, which is the requirement for considering your effective interest rate to be based upon full deductibility.

For myself, my mortgage interest will be transitioning from a fully deductible rate (SALT + property taxes + charitable contributions over standard deduction) to negligible benefit (only will be a couple thousand over the standard deduction). Decisions made about whether or not to prepay will be considered at the full rate.
I'm paying off mine, pretty sure. I'm liquid enough that's it's not a big issue and it's been gnawing at me.

My only real question is about the pass-through. If that deduction gets itemized, then my mortgage interest is still a useful deduction. Otherwise, I won't itemize anymore so this is a big jump in the cost of my mortgage, as you stated.

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CAsage
Posts: 931
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Re: Tax Bill Omnibus Thread

Post by CAsage » Thu Dec 21, 2017 1:26 pm

Theseus wrote:
Thu Dec 21, 2017 9:20 am
CAsage wrote:
Wed Dec 20, 2017 11:51 pm
Theseus wrote:
Wed Dec 20, 2017 10:50 pm
Per my latest scenario run in TurboTax I owe almost $24k in state taxes this year to Virginia. This is partly due to sale of my business and I have not yet paid estimated taxes to my state yet. So if I send the check in, will I be able to itemize that in my 2017 federal return? And if I don’t send the check in 2017 then I loose it in 2018 due to $10k cap?
Your understanding appears to be consistent with what everyone else is saying and writing and reading in the new tax code. If you can pay that online, to ensure it gets in this year, I would do that! Pay now!
Thank you. So I entered the estimated Virginia state tax payment of $24,000 in TurboTax. While it zeroed out my Virginia state tax, the Federal Tax reduced by only about $350 - that's only about 1.5% of reduction. So does this mean my deductions are phasing out? Where do I go and look in TurboTax or in the form to see these calculations?
Tragically, you have been (I am guessing) hit by the dreaded AMT. Look in TurboTax for form 6251 and Line 45 of your 1040. I was affected adversely in the same way (though will smaller numbers :) ) and the only way to deduct larger SALT or property taxes in AMT-zone is massive Charitable (or other...) deductions. Which explains the interest in Charitable Donor Advised Funds here and in other threads. You really have to model this stuff with tax software; everyone's case is different. Congrats on the business sale!
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.

scrabbler1
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Re: Tax Bill Omnibus Thread

Post by scrabbler1 » Thu Dec 21, 2017 1:36 pm

SlowMovingInvestor wrote:
Thu Dec 21, 2017 8:48 am
mouth wrote:
Thu Dec 21, 2017 8:12 am
alpenglow wrote:
Thu Dec 21, 2017 7:32 am
Bacchus01 wrote:
Thu Dec 21, 2017 5:03 am
How can you submit a new W4 in Jan when it appears there will be no legal W4s to submit? Must get done before year end then.
I submitted a new W4 yesterday.
I'm strongly considering this action myself. I'd rather be headed towards an underpayment right now and then have to add extra withholding a little later once the new form comes out because I'd be worried the new form might not have enough flexibility to reduce withholdings enough to avoid a huge return.

time to fire up a paycheck calc and see how many "exemptions" I need to add.

UPDATE: ok so according to the tax comparison link I'm looking to save nearly ~$4100 with the new tax bill. I currently have 0 allowances on my W-4. Using PayCheckCity to estimate the impact of various allowance values I would have to go from 0 to 8 (EIGHT!!!) allowances to bring my expected annual withholding down to $4000 :O I feel like that might be juuuuuuust a little extreme.

how much is anyone around here really going to change their W4?
I've upped exemptions to the maximum (which was 99 in my payroll system) at times to get 0 withholding from paychecks when I had paid enough to reach safe harbor. I don't really understand why there should be any angst over not having withholding absolutely right come Jan 1 -- one has all year (or at least the first quarter) to make sure now has reached safe harbor).
I once upped my personal exemptions to avoid overwithholding my taxes. This was in 1985, the first year I began working after college. I began working in July but figured out beforehand that I would have taxes withheld as if I were working the entire year (double the eventual annual pay). In 1985, there were many, many tax brackets with narrow ranges (pre-1986 tax reform).

My payroll department gave me the withholding tables they use, and I somehow figured out I should have 12 exemptions to lower my withheld taxes to the right amount for the whole year. The plan worked perfectly. I had about $160 more per paycheck and I owed or got back less than $100 from the Feds and the state (which I also used 12 exemptions). That amount, about $1,600, was crucial when I was able to buy my first car early the following year without needing a car loan (or waiting for tax refunds).

Bacchus01
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Re: Tax Bill Omnibus Thread

Post by Bacchus01 » Thu Dec 21, 2017 1:40 pm

scrabbler1 wrote:
Thu Dec 21, 2017 1:36 pm
SlowMovingInvestor wrote:
Thu Dec 21, 2017 8:48 am
mouth wrote:
Thu Dec 21, 2017 8:12 am
alpenglow wrote:
Thu Dec 21, 2017 7:32 am
Bacchus01 wrote:
Thu Dec 21, 2017 5:03 am
How can you submit a new W4 in Jan when it appears there will be no legal W4s to submit? Must get done before year end then.
I submitted a new W4 yesterday.
I'm strongly considering this action myself. I'd rather be headed towards an underpayment right now and then have to add extra withholding a little later once the new form comes out because I'd be worried the new form might not have enough flexibility to reduce withholdings enough to avoid a huge return.

time to fire up a paycheck calc and see how many "exemptions" I need to add.

UPDATE: ok so according to the tax comparison link I'm looking to save nearly ~$4100 with the new tax bill. I currently have 0 allowances on my W-4. Using PayCheckCity to estimate the impact of various allowance values I would have to go from 0 to 8 (EIGHT!!!) allowances to bring my expected annual withholding down to $4000 :O I feel like that might be juuuuuuust a little extreme.

how much is anyone around here really going to change their W4?
I've upped exemptions to the maximum (which was 99 in my payroll system) at times to get 0 withholding from paychecks when I had paid enough to reach safe harbor. I don't really understand why there should be any angst over not having withholding absolutely right come Jan 1 -- one has all year (or at least the first quarter) to make sure now has reached safe harbor).
I once upped my personal exemptions to avoid overwithholding my taxes. This was in 1985, the first year I began working after college. I began working in July but figured out beforehand that I would have taxes withheld as if I were working the entire year (double the eventual annual pay). In 1985, there were many, many tax brackets with narrow ranges (pre-1986 tax reform).

My payroll department gave me the withholding tables they use, and I somehow figured out I should have 12 exemptions to lower my withheld taxes to the right amount for the whole year. The plan worked perfectly. I had about $160 more per paycheck and I owed or got back less than $100 from the Feds and the state (which I also used 12 exemptions). That amount, about $1,600, was crucial when I was able to buy my first car early the following year without needing a car loan (or waiting for tax refunds).
Interesting. My goal is to underpay through the year by the largest amount possible while still avoiding an underpayment penalty.

darrvao777
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Re: Tax Bill Omnibus Thread

Post by darrvao777 » Thu Dec 21, 2017 1:42 pm

Gleevec wrote:
Thu Dec 21, 2017 1:02 pm
So for those of us with "side hustle" 1099 income (eg solo consulting, separate from our W2 day job wages) who are excluded from pass through tax relief, does it make any sense to become a C-corp?
And to expand on this further, is there a way to become a C-corp and convert our W2 day job wages? Or is this not an option for employees?

nyclon
Posts: 250
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Re: Tax Bill Omnibus Thread

Post by nyclon » Thu Dec 21, 2017 1:43 pm

Nutmeg wrote:
Thu Dec 21, 2017 1:21 pm
nyclon wrote:
Thu Dec 21, 2017 12:54 pm
omgbirdman wrote:
Thu Dec 21, 2017 12:51 pm
nyclon wrote:
Thu Dec 21, 2017 12:48 pm

Does paying estimated tax in December vs January 2018 apply to both state and federal tax, or just state?

I have a large, anomalous capital gain this year for which I was planning to pay the tax in April. But it seems like I should pay in 2017 in order to itemize; having said that, I don't know if there's benefit to paying the federal tax in 2017 - but I know paying the state tax in 2017 means a deduction via itemization on 2017 forms.

It's likely we'll take the $24k std deduction in 2018.

Any advice is appreciated, thanks!
State tax only. Federal tax is not deductible in any regard.
Thank you - very helpful. Wasn't sure if I was missing anything.
Paying estimated federal tax due in 2017 rather than 2018 could help you avoid underpayment penalties.
Thanks for pointing this out. I will have exceeded the amount of federal tax paid in 2016 without the additional amount I was planning to pay in April (but which I will pay prior to year end now) - my understanding is that so long as you meet or exceed the previous year, underpayment penalties are waived. I could be wrong, though.

harikaried
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Re: Tax Bill Omnibus Thread

Post by harikaried » Thu Dec 21, 2017 1:50 pm

Rupert wrote:
Thu Dec 21, 2017 10:36 am
Does anyone know if the new law impacts flexible spending accounts in any way? My Google search just turned up a bunch of articles from November.
Looks like HSA, Health FSA, Dependent Care FSAs are all unchanged.

http://docs.house.gov/billsthisweek/201 ... tement.pdf

Page 102: 10. Termination of deduction and exclusions for contributions to medical savings accounts. House version would have removed it, and the conference agreement does not.

Page 109. 15. Sunset of exclusion for dependent care assistance programs. House version would have removed it, and the conference agreement does not.

Looks like no mention of Section 125 Cafeteria Plan / Health FSAs in any versions of the bill.

scrabbler1
Posts: 2179
Joined: Fri Nov 20, 2009 2:39 pm

Re: Tax Bill Omnibus Thread

Post by scrabbler1 » Thu Dec 21, 2017 1:54 pm

nyclon wrote:
Thu Dec 21, 2017 1:43 pm
Nutmeg wrote:
Thu Dec 21, 2017 1:21 pm
nyclon wrote:
Thu Dec 21, 2017 12:54 pm
omgbirdman wrote:
Thu Dec 21, 2017 12:51 pm
nyclon wrote:
Thu Dec 21, 2017 12:48 pm

Does paying estimated tax in December vs January 2018 apply to both state and federal tax, or just state?

I have a large, anomalous capital gain this year for which I was planning to pay the tax in April. But it seems like I should pay in 2017 in order to itemize; having said that, I don't know if there's benefit to paying the federal tax in 2017 - but I know paying the state tax in 2017 means a deduction via itemization on 2017 forms.

It's likely we'll take the $24k std deduction in 2018.

Any advice is appreciated, thanks!
State tax only. Federal tax is not deductible in any regard.
Thank you - very helpful. Wasn't sure if I was missing anything.
Paying estimated federal tax due in 2017 rather than 2018 could help you avoid underpayment penalties.
Thanks for pointing this out. I will have exceeded the amount of federal tax paid in 2016 without the additional amount I was planning to pay in April (but which I will pay prior to year end now) - my understanding is that so long as you meet or exceed the previous year, underpayment penalties are waived. I could be wrong, though.
You can make your 4th quarter estimated tax payment in the first 2 weeks of January the following year and it will still be on time. For many years, I have made 4th quarter estimated tax payments. For state payments, I usually made them before 12/31 so I could deduct them on that same year's federal income tax return. I was not in the same rush to make the federal payments by 12/31, however. I made them in early January to spread them out versus my cash inflows. Even then, I would split the federal payments up between the 4th quarter estimated payment and the April payment at tax time, making sure I was in a "safe harbor," of course.

keystone
Posts: 500
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Re: Tax Bill Omnibus Thread

Post by keystone » Thu Dec 21, 2017 1:54 pm

kenyan wrote:
Thu Dec 21, 2017 12:02 pm
People should be re-examining whether or not to prepay their mortgage, at least if they are potentially in a position to do so. Switching from itemization of deductions to standard deduction completely nullifies any benefit of mortgage interest deductibility. In addition, the increase in the standard deduction may be significantly increasing your effective mortgage interest rate, even if you will still be itemizing. There will be few people who would continue to itemize without mortgage interest, which is the requirement for considering your effective interest rate to be based upon full deductibility.

For myself, my mortgage interest will be transitioning from a fully deductible rate (SALT + property taxes + charitable contributions over standard deduction) to negligible benefit (only will be a couple thousand over the standard deduction). Decisions made about whether or not to prepay will be considered at the full rate.
Yes, I'm in a similar situation. I will be going from fully itemizing in 2017 (property plus state and local income tax put me over the standard deduction) to right at or slightly below the 24K standard deduction in 2018.

This makes me wonder about how many mortgage payments I should prepay in 2017. It seems like paying my January 2018 mortgage payment in 2017 is a no brainer, but I wonder if I should consider prepaying several more months worth of payments in 2017.

sandramjet
Posts: 214
Joined: Thu Oct 23, 2014 11:28 pm

Re: Tax Bill Omnibus Thread

Post by sandramjet » Thu Dec 21, 2017 1:57 pm

alpenglow wrote:
Wed Dec 20, 2017 6:55 pm
sandramjet wrote:
Wed Dec 20, 2017 6:20 pm
Anyone know if there are any changes in the deductibility of EE/I bonds used for education (or using proceeds to fund a 529 plan)?
Good question - does anyone know? I was hoping to deduct I bond interest in 2018 to fund a 529. I already did so in 2017.
Just kinda bumping this because it feels like it got lost in all the other posts. Anyone know about this yet? I tried to find it online but no such luck.

itworks
Posts: 100
Joined: Sat Jan 15, 2011 3:20 pm

Bunching mortgage for 1 year, 2 years?

Post by itworks » Thu Dec 21, 2017 1:58 pm

Want to run this idea with you folks for my situation:

1. I am pretty sure I will hit hard by AMT in year 2017.
2. In HCOLA state. my SALT+Property tax is way over the allowed $10K.
3. Mortgage interest is about $18K in 2017, which makes my 2018 itemized-deduction ($27K) not too valuable compared to the standard-deduction $24K.

My lender said I can prepay mortgage for as many years as I like (which is bizarre, and I do not know whether I can trust the CSR; for any question I asked, she would reply 'let me check and get back to you'.)

Let us assume I can prepay mortgage for N years, and here is the math:

- prepay 1 year
extra mortgage interest deducted from 2017 filing: $17K.
Saved tax in 2017: $4.8K.
Added tax in 2018: $1.3K

- prepay 2 years
extra mortgage interest deducted from 2017 filing: $34K.
Saved tax in 2017: $9.5K.
Added tax in 2018: $5.5K

The other consideration factor is, if that amount of money does not go to the mortgage, I can use them for investment, so there is an opportunity cost.

Any pointers? Should I go ahead?

PatrickA5
Posts: 297
Joined: Mon Jul 28, 2014 1:55 pm

Re: Tax Bill Omnibus Thread

Post by PatrickA5 » Thu Dec 21, 2017 2:01 pm

sandramjet wrote:
Thu Dec 21, 2017 1:57 pm
alpenglow wrote:
Wed Dec 20, 2017 6:55 pm
sandramjet wrote:
Wed Dec 20, 2017 6:20 pm
Anyone know if there are any changes in the deductibility of EE/I bonds used for education (or using proceeds to fund a 529 plan)?
Good question - does anyone know? I was hoping to deduct I bond interest in 2018 to fund a 529. I already did so in 2017.
Just kinda bumping this because it feels like it got lost in all the other posts. Anyone know about this yet? I tried to find it online but no such luck.
I believe all of the education deductions/credits remain as before. There was change in the 529 rules that allows using funds for private secondary schools. If there was ever a place that needed to be "simplified", it was education!

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Hayden
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Re: Bunching mortgage for 1 year, 2 years?

Post by Hayden » Thu Dec 21, 2017 2:03 pm

itworks wrote:
Thu Dec 21, 2017 1:58 pm
Want to run this idea with you folks for my situation:

1. I am pretty sure I will hit hard by AMT in year 2017.
2. In HCOLA state. my SALT+Property tax is way over the allowed $10K.
3. Mortgage interest is about $18K in 2017, which makes my 2018 itemized-deduction ($27K) not too valuable compared to the standard-deduction $24K.

My lender said I can prepay mortgage for as many years as I like (which is bizarre, and I do not know whether I can trust the CSR; for any question I asked, she would reply 'let me check and get back to you'.)

Let us assume I can prepay mortgage for N years, and here is the math:

- prepay 1 year
extra mortgage interest deducted from 2017 filing: $17K.
Saved tax in 2017: $4.8K.
Added tax in 2018: $1.3K

- prepay 2 years
extra mortgage interest deducted from 2017 filing: $34K.
Saved tax in 2017: $9.5K.
Added tax in 2018: $5.5K

The other consideration factor is, if that amount of money does not go to the mortgage, I can use them for investment, so there is an opportunity cost.

Any pointers? Should I go ahead?
I interpret "prepay mortgage" to mean pay down principal, not prepay interest. Suggest you get clarification on this point.

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catdude
Posts: 1500
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Location: Central Oregon

Re: Tax Bill Omnibus Thread

Post by catdude » Thu Dec 21, 2017 2:04 pm

Wade Garrett wrote:
Thu Dec 21, 2017 9:53 am
catdude wrote:
Thu Dec 21, 2017 1:01 am
Looks like advance refundings are not allowed in the new law. A lot of folks in state & local governments are gonna be quite unhappy about this. In a declining muni bond rate environment, advance refundings (where existing bonds are refunded/refinanced more than 90 days before the call date) are a great way to lower interest expense. It's too bad that they're no longer around because they saved taxpayers a lot of money.
Any idea how this will impact muni funds that hold a lot of these type of bonds specifically.... like BMBIX (Baird Quality Intermediate Muni Fund)?
I can only guess at the impact on muni bond funds. I imagine that the new law would have a beneficial effect on muni funds, since issuers won't be able to do advance refundings and replace higher-rate bonds with lower-rate ones. But I honestly don't know for sure. The immediate impact, though, is probably quite limited; muni interest rates have been very low for awhile so issuers in a position to refund bonds have already done so. Going forward I think it'll be awhile before many refundings occur.
catdude | | "I yield to the gentleman for a few feeble remarks." (Congressman Thaddeus Stevens)

sandramjet
Posts: 214
Joined: Thu Oct 23, 2014 11:28 pm

Re: Tax Bill Omnibus Thread

Post by sandramjet » Thu Dec 21, 2017 2:09 pm

sandramjet wrote:
Thu Dec 21, 2017 1:57 pm
alpenglow wrote:
Wed Dec 20, 2017 6:55 pm
sandramjet wrote:
Wed Dec 20, 2017 6:20 pm
Anyone know if there are any changes in the deductibility of EE/I bonds used for education (or using proceeds to fund a 529 plan)?
Good question - does anyone know? I was hoping to deduct I bond interest in 2018 to fund a 529. I already did so in 2017.
Just kinda bumping this because it feels like it got lost in all the other posts. Anyone know about this yet? I tried to find it online but no such luck.
Ok, never mind... I think I found it ... the house bill repealed this. Senate did not. Conference bill does NOT adopt house bill provision, so I assume it is left as is. Not sure what the phase out amounts are, though.

AZMax
Posts: 50
Joined: Thu Oct 16, 2014 10:52 pm

Re: Tax Bill Omnibus Thread

Post by AZMax » Thu Dec 21, 2017 2:16 pm

Here's Fidelity's summary posted yesterday.
https://www.fidelity.com/viewpoints/per ... al-details

Note that regarding Roth recharacterizations they state:
"The bill does call for ending the Roth IRA recharacterization option starting in 2018, but 2017 recharacterizations will be permitted.

NorCalDad
Posts: 756
Joined: Sun Mar 25, 2012 11:14 pm
Location: Northern California

Re: Bunching mortgage for 1 year, 2 years?

Post by NorCalDad » Thu Dec 21, 2017 2:17 pm

Hayden wrote:
Thu Dec 21, 2017 2:03 pm
itworks wrote:
Thu Dec 21, 2017 1:58 pm
Want to run this idea with you folks for my situation:

1. I am pretty sure I will hit hard by AMT in year 2017.
2. In HCOLA state. my SALT+Property tax is way over the allowed $10K.
3. Mortgage interest is about $18K in 2017, which makes my 2018 itemized-deduction ($27K) not too valuable compared to the standard-deduction $24K.

My lender said I can prepay mortgage for as many years as I like (which is bizarre, and I do not know whether I can trust the CSR; for any question I asked, she would reply 'let me check and get back to you'.)

Let us assume I can prepay mortgage for N years, and here is the math:

- prepay 1 year
extra mortgage interest deducted from 2017 filing: $17K.
Saved tax in 2017: $4.8K.
Added tax in 2018: $1.3K

- prepay 2 years
extra mortgage interest deducted from 2017 filing: $34K.
Saved tax in 2017: $9.5K.
Added tax in 2018: $5.5K

The other consideration factor is, if that amount of money does not go to the mortgage, I can use them for investment, so there is an opportunity cost.

Any pointers? Should I go ahead?
I interpret "prepay mortgage" to mean pay down principal, not prepay interest. Suggest you get clarification on this point.
I was skeptical about this, too. But at least at my mortgage holder, which I assume is one shared by others here (PenFed), the CSR pointed out that you actually have to take further action to direct your payment toward principal; any payment the system accepts is automatically applied to a monthly principal+interest amount due. She said an extra payment now would go toward my 2/1/18 bill, but wasn't sure if the system then would reset and accept a third payment toward a 3/1/18 bill.

markcoop
Posts: 764
Joined: Fri Mar 02, 2007 8:36 am

Re: Bunching mortgage for 1 year, 2 years?

Post by markcoop » Thu Dec 21, 2017 2:23 pm

mikep said this earlier: "I think you can only do Jan by the end of the year. Interest must be paid in the year accrued.. January is actually interest for the months of December so that's the only one that can be moved."
Mark

NorCalDad
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Location: Northern California

Re: Bunching mortgage for 1 year, 2 years?

Post by NorCalDad » Thu Dec 21, 2017 2:26 pm

markcoop wrote:
Thu Dec 21, 2017 2:23 pm
mikep said this earlier: "I think you can only do Jan by the end of the year. Interest must be paid in the year accrued.. January is actually interest for the months of December so that's the only one that can be moved."
Good to know. Thanks.

IMO
Posts: 267
Joined: Fri May 05, 2017 6:01 pm

Re: Tax Bill Omnibus Thread

Post by IMO » Thu Dec 21, 2017 2:34 pm

In not in any way a tax professional, but there seems to be the thought by some that if one prepays their mortgage payments now for 2018 and even further, say 2019, that they can use that interest they are prepaying to their advantage for itemizing.

I just don't believe that is legitimate. I'd consult one's tax professional before considering that.

IRS publication 936 states:

"Prepaid interest.
If you pay interest in advance for a period that goes beyond the end of the tax year, you must spread this interest over the tax years to which it applies. You can deduct in each year only the interest that qualifies as home mortgage interest for that year. However, there is an exception that applies to points, discussed later. "

fuzzball
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Joined: Tue Jul 19, 2016 5:52 pm

Re: Tax Bill Omnibus Thread

Post by fuzzball » Thu Dec 21, 2017 2:36 pm

If I'm in AMT (as per Taxcaster), should I prepay any business expenses that I can defer until 2018? Expenses I'm referring to = licensing cost/professional membership/subscriptions/etc.

Thanks!

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