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
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WoodSpinner
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Re: Tax Bill Omnibus Thread

Post by WoodSpinner » Wed Dec 20, 2017 2:42 pm

All,

Please take a look at Kitces analysis and suggested 2017 actions. It’s very well done from my perspective.

For me this translates to paying my 2017 Estimated State Tax in December not January. Other actions may vary based on your situation.

Not happy about the bill, but it is what it is, and I want to adapt while I can.

WoodSpinner :annoyed
Last edited by WoodSpinner on Wed Dec 20, 2017 3:15 pm, edited 1 time in total.

Drew31
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Re: Tax Bill Omnibus Thread

Post by Drew31 » Wed Dec 20, 2017 2:42 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.
Nice call out. Hadn't thought about that one yet.

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Meaty
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Re: Tax Bill Omnibus Thread

Post by Meaty » Wed Dec 20, 2017 2:43 pm

Tanelorn wrote:
Wed Dec 20, 2017 2:29 pm
Meaty wrote:
Wed Dec 20, 2017 2:25 pm
Any impact to back door Roth availability?
No change. You can also still recharacterize an annual contribution from a tIRA to a Roth or v versa if you decide you made a mistake or otherwise regret it, but you can't undo conversions made in 2018 onwards. Agree with others earlier that Roth conversions made in 2017 and attempted to be recharacterized in 2018 may be uncertain, but possibly still allowed.
Thanks
"Discipline equals Freedom" - Jocko Willink

Stormbringer
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Re: Tax Bill Omnibus Thread

Post by Stormbringer » Wed Dec 20, 2017 2:43 pm

KlangFool wrote:
Wed Dec 20, 2017 2:40 pm
Folks,

Pardon my ignorance, my kids are in college. They are more than 17 years old and less than 24 years old. They are my dependents. If I meet the income limit, can I claim the child tax credits?

KlangFool
It doesn't look like they changed the original age requirement, just the amount of the credit:
The term "qualifying child" means a qualifying child of the taxpayer (as defined in section 152(c)) who has not attained age 17.
"Compound interest is the most powerful force in the universe." - Albert Einstein

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Ketawa
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Re: Tax Bill Omnibus Thread

Post by Ketawa » Wed Dec 20, 2017 2:44 pm

mw1739 wrote:
Wed Dec 20, 2017 2:30 pm
I expect to owe both state and federal taxes upon filing in April 2018 (not worried about penalties). Am I correct in my thought that I should make an estimated tax payment to pre-pay those before the end of the year so they are deductible for 2017? I expect to exceed the $10k SALT limitation going forward.
Making additional 2017 federal tax payments should not have an effect. No benefits or drawbacks other than the time value of money.

You should certainly make additional 2017 state tax payments at least up to the amount of state tax, so you have a small refund. Any overpayments/refunds of state tax will be included in income in 2018. Your 2017 marginal rate is probably higher than your 2018 marginal rate, something to consider...

Drew31
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Re: Tax Bill Omnibus Thread

Post by Drew31 » Wed Dec 20, 2017 2:44 pm

NotWhoYouThink wrote:
Wed Dec 20, 2017 2:41 pm
harikaried wrote:
Wed Dec 20, 2017 2:38 pm
KlangFool wrote:
Wed Dec 20, 2017 2:04 pm
If the personal exemption is suspended, what is the tax benefit of claiming my children as the dependent? Please enlightened me.
Instead of a ~$4000 exemption, which reduces taxes by $1000 at 25% marginal rate, you get $2000 child tax credit, so roughly $1000 less in income taxes per child.
Or a flat $0 for children 17 and older
Except that today you're getting $2000 too from the current CTC of $1000 plus $1000 personal exemption. So it's a wash using your example.

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Leif
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Re: Tax Bill Omnibus Thread

Post by Leif » Wed Dec 20, 2017 2:45 pm

JDCarpenter wrote:
Wed Dec 20, 2017 1:44 pm
For us, the size of the 24% bracket is going to allow us to accelerate conversions. We plan to do big conversion in Jan, then a tailored one in late December to fill that bracket up. The timing of the latter is due to inability to recharacterize any overshots.
Sounds like a plan. If your RMDs would throw you into the new 32% bracket then doing some conversions makes a lot of sense.

Just keep in mind the Medicare part B pricing and NIIT (Net Investment Income Tax) have the same limits AFAIK.

Question - I may also do a conversion next year. If you do a conversion in January, and you don't want any withholding so that all can go into the Roth, then is it necessary to send in an estimate tax payment in April to cover the conversion?

Silk McCue
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Re: Tax Bill Omnibus Thread

Post by Silk McCue » Wed Dec 20, 2017 2:47 pm

KlangFool wrote:
Wed Dec 20, 2017 2:40 pm
Folks,

Pardon my ignorance, my kids are in college. They are more than 17 years old and less than 24 years old. They are my dependents. If I meet the income limit, can I claim the child tax credits?

KlangFool
I think that you can see exactly what changes between current (2017) and future (2018 ->) for your own circumstances using

http://taxplancalculator.com/

It is a very simple tool and the results are worth a thousand questions/words. Hope it helps.

hawkfan55
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Re: Tax Bill Omnibus Thread

Post by hawkfan55 » Wed Dec 20, 2017 2:47 pm

That's what I'm thinking. It may be wise for a lot of people to take full advantage of the 24% bracket as the next bracket down is only 2% lower, 24% is a pretty good rate, it's a pretty wide bracket, and the next one up is a huge jump (32%).
Would someone who is 63 or older want to limit conversions to 22% to keep Medicare costs as low as possible. I was also going to start Roth Conversions this year however, I'm not sure now. At 62, I was going to do Roth Conversions within the next week to the top of 25% bracket. Now, I'm thinking of waiting to start Roth Conversions next year.
Forum Library of Investing Advice: https://www.bogleheads.org/wiki/Main_Page

cherijoh
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Re: Tax Bill Omnibus Thread

Post by cherijoh » Wed Dec 20, 2017 2:48 pm

mffl wrote:
Wed Dec 20, 2017 1:43 pm
caseynshan wrote:
Wed Dec 20, 2017 1:36 pm
My personal situation/Strategy

Feel free to add constructive criticism.. might help someone else..

State Tax - 9k
Prop Tax - 3k
subtotal 12k (will be limited to 10k in 2018)
Mort Interest - 6k
charity -15k
---------
Total deductions 2017 - 33k
Total deductions 2018 - 31k

2018 - 31k more than 24k standard deduct.. so no need to bunch Charity. (I don't want to bunch all 30k/0k.. realistically would only bunch charity something like 26k/4k.. which wouldn't end up mattering.)

Can try to reduce SALT a little.. (I have held off on 529 contribution, and will hold that for 2018 which will reduce my State Tax)
Prepaying Mort Interest would not be helpful.. could try to prepay state tax.. but due to amount.. probably not worth confusion.


AMT not a concern
You could look into something like a Donor Advised Fund. It's like your very own little charitable foundation. It allows you to disentangle the date you get the charitable deduction from the date you actually make the distribution to the charity. Fidelity has a good one. It's really simple to set up and has the added benefit of being able to donate appreciated stock, and then you avoid the cap gains on the appreciated stock. Then you would in fact bunch up charity 30k/0k in terms of when the donation to the DAF was, but you could continue to distribute funds to your desired charity on the desired donation schedule.
I was thinking exactly the same thing. I set up a DAF at Fidelity early in the year anticipating my retirement in the near future. Since i'm still working and my employer offers matching on charitable giving, I haven't tapped my DAF yet. But I wanted to get it started (and funded) in a high income year.

jeanpierremelville
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Re: Tax Bill Omnibus Thread

Post by jeanpierremelville » Wed Dec 20, 2017 2:50 pm

Is there any mention of eliminating tax deductible contributions to 457B plans?

I found something on-line in 9/2017 but have not seen anything recently.

Thanks all.

KlangFool
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Re: Tax Bill Omnibus Thread

Post by KlangFool » Wed Dec 20, 2017 2:50 pm

Stormbringer wrote:
Wed Dec 20, 2017 2:43 pm
KlangFool wrote:
Wed Dec 20, 2017 2:40 pm
Folks,

Pardon my ignorance, my kids are in college. They are more than 17 years old and less than 24 years old. They are my dependents. If I meet the income limit, can I claim the child tax credits?

KlangFool
It doesn't look like they changed the original age requirement, just the amount of the credit:
The term "qualifying child" means a qualifying child of the taxpayer (as defined in section 152(c)) who has not attained age 17.
Stormbringer,

So, I guess in my case I lost my personal exemption and do not get child tax credits in return.

KlangFool

mffl
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Re: Tax Bill Omnibus Thread

Post by mffl » 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.

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WoodSpinner
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Re: Tax Bill Omnibus Thread

Post by WoodSpinner » Wed Dec 20, 2017 2:52 pm

Seasonal wrote:
Wed Dec 20, 2017 1:41 pm
Does this affect Roth conversion strategy or timing? I'd think the only issues would be that (1) the changes in tax brackets may change the amounts converted in 2018, etc. at the margins and (2) the elimination of Roth re-characterization may limit some cleverness, but am wondering if there are other implications?
Based on my understanding, Roth Conversionsersions are fine (I will be doing them!), but recharacterizations of a conversion are no longer allowed starting 2018.

Recharacterization of contributions will continue to be supported.

WoodSpinner 8-)

Isabelle77
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Re: Tax Bill Omnibus Thread

Post by Isabelle77 » Wed Dec 20, 2017 2:53 pm

KlangFool wrote:
Wed Dec 20, 2017 2:50 pm
Stormbringer wrote:
Wed Dec 20, 2017 2:43 pm
KlangFool wrote:
Wed Dec 20, 2017 2:40 pm
Folks,

Pardon my ignorance, my kids are in college. They are more than 17 years old and less than 24 years old. They are my dependents. If I meet the income limit, can I claim the child tax credits?

KlangFool
It doesn't look like they changed the original age requirement, just the amount of the credit:
The term "qualifying child" means a qualifying child of the taxpayer (as defined in section 152(c)) who has not attained age 17.
Stormbringer,

So, I guess in my case I lost my personal exemption and do not get child tax credits in return.

KlangFool
I believe there is a $500 tax credit for non child dependents.
https://www.forbes.com/sites/beltway/20 ... 6c1d0a735c

mffl
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Re: Tax Bill Omnibus Thread

Post by mffl » Wed Dec 20, 2017 2:53 pm

NotWhoYouThink wrote:
Wed Dec 20, 2017 2:41 pm
harikaried wrote:
Wed Dec 20, 2017 2:38 pm
KlangFool wrote:
Wed Dec 20, 2017 2:04 pm
If the personal exemption is suspended, what is the tax benefit of claiming my children as the dependent? Please enlightened me.
Instead of a ~$4000 exemption, which reduces taxes by $1000 at 25% marginal rate, you get $2000 child tax credit, so roughly $1000 less in income taxes per child.
Or a flat $0 for children 17 and older
I think you get a $500 credit for 17 and older. It's not $2000, but it's not $0.

"Notably, the new rules also include a new $500 (nonrefundable) credit for dependents who are not “qualifying” children (i.e., dependents under age 17). This may include older (e.g., college-aged) children who are still claimed as dependents, and even dependent parents who are being cared for in the home. The new $500 qualifying dependent credit is also subject to the same (higher) income phaseout rules."

https://www.kitces.com/blog/final-gop-t ... trategies/

Nate79
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Re: Tax Bill Omnibus Thread

Post by Nate79 » Wed Dec 20, 2017 2:54 pm

mikep wrote:
Wed Dec 20, 2017 2:40 pm
Nate79 wrote:
Wed Dec 20, 2017 1:55 pm
Drew31 wrote:
Wed Dec 20, 2017 1:53 pm
Will be paying Jan and Feb mortgage payments this month. Doesn't look like I'll be itemizing any longer.
I would suggest to check with your mortgage company whether they will report the interest for those payments in 2017 or 2018.
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.

However if I am wrong and you can do Feb.. why stop there? Why not go all the way to Dec or even longer?
This is what I thought as well. But I also just called my bank and they said that the interest is reported when paid and that the system let's me prepay the Jan and Feb payments (I'm not sure about beyond that). While I am somewhat dubious that this will actually be reported this way I'm going to go ahead and schedule the payments for Jan and Feb within Dec to see if it works.

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obafgkm
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Re: Tax Bill Omnibus Thread

Post by obafgkm » Wed Dec 20, 2017 2:55 pm

For tax year 2017, I will be in my second (and last) year of filing as "Qualifying Widow(er)", where my marginal tax rate is 15%. Beginning in tax year 2018, I will start filing as "Head of Household", with a marginal tax rate of 22%. I have one child under 17.

I had been planning on bunching my charitable donations and making thirteen mortgage payments in even years (for example, I paid my January 2017 mortgage bill in December 2016). Under this plan, I have hardly made any charitable contributions in 2017.

I will likely be in a position to not itemize for tax year 2018 under the new tax bill because of the higher standard deduction. Because of this, I think I should contribute to charity before December 31, 2017 instead of waiting until after the New Year, and also pay my January 2018 mortgage bill before the end of December, even though my marginal tax rate is lower now than next year. Is my thinking correct?

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WoodSpinner
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Re: Tax Bill Omnibus Thread

Post by WoodSpinner » Wed Dec 20, 2017 2:55 pm

JDCarpenter wrote:
Wed Dec 20, 2017 1:44 pm
Seasonal wrote:
Wed Dec 20, 2017 1:41 pm
Does this affect Roth conversion strategy or timing? I'd think the only issues would be that (1) the changes in tax brackets may change the amounts converted in 2018, etc. at the margins and (2) the elimination of Roth re-characterization may limit some cleverness, but am wondering if there are other implications?
For us, the size of the 24% bracket is going to allow us to accelerate conversions. We plan to do big conversion in Jan, then a tailored one in late December to fill that bracket up. The timing of the latter is due to inability to recharacterize any overshots.
+1

Spirit Rider
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Re: Tax Bill Omnibus Thread

Post by Spirit Rider » Wed Dec 20, 2017 2:55 pm

harikaried wrote:
Wed Dec 20, 2017 2:38 pm
KlangFool wrote:
Wed Dec 20, 2017 2:04 pm
If the personal exemption is suspended, what is the tax benefit of claiming my children as the dependent? Please enlightened me.
Instead of a ~$4000 exemption, which reduces taxes by $1000 at 25% marginal rate, you get $2000 child tax credit, so roughly $1000 less in income taxes per child.
The current child tax credit is already $1,000. So instead of $1,000 + ($4,150 * 24% = $996) = $1,996 it will be $2,000, a $4 reduction for someone in the 24% tax bracket. Taxpayers in lower tax brackets will net more/qualifying child and taxpayers in higher brackets will end up paying more.
Last edited by Spirit Rider on Wed Dec 20, 2017 2:56 pm, edited 1 time in total.

Silk McCue
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Re: Tax Bill Omnibus Thread

Post by Silk McCue » Wed Dec 20, 2017 2:55 pm

hawkfan55 wrote:
Wed Dec 20, 2017 2:47 pm
That's what I'm thinking. It may be wise for a lot of people to take full advantage of the 24% bracket as the next bracket down is only 2% lower, 24% is a pretty good rate, it's a pretty wide bracket, and the next one up is a huge jump (32%).
Would someone who is 63 or older want to limit conversions to 22% to keep Medicare costs as low as possible. I was also going to start Roth Conversions this year however, I'm not sure now. At 62, I was going to do Roth Conversions within the next week to the top of 25% bracket. Now, I'm thinking of waiting to start Roth Conversions next year.
I think you should consider if you can get all of the conversions done in futures years that you want to do without converting some this year. If you convert this year it may still be advantageous if the marginal rate including future social security taxation is less this year than what it will be during RMD years.

Stormbringer
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Re: Tax Bill Omnibus Thread

Post by Stormbringer » Wed Dec 20, 2017 2:56 pm

rrouse wrote:
Wed Dec 20, 2017 1:42 pm
How does the 20% deduction for pass-through income interact with AMT? It seems like if you had to add the deduction back in, it would negate the benefit (then again, that seems to be the point of AMT).
I haven't been able to find a comprehensive explanation of the pass-through deduction, just some vague information:
  • It starts to phase out at $315,000 (married couple) but how fast isn't clear.
  • Limited by W-2 wages paid, or capital investment.
  • It looks like passive real estate investments may qualify.
  • The deduction appears to be on a business by business basis.
  • Not sure if it is an above or below the line deduction.
  • Totally unclear how it is affected by AMT.
"Compound interest is the most powerful force in the universe." - Albert Einstein

KlangFool
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Re: Tax Bill Omnibus Thread

Post by KlangFool » Wed Dec 20, 2017 2:58 pm

mffl wrote:
Wed Dec 20, 2017 2:53 pm
NotWhoYouThink wrote:
Wed Dec 20, 2017 2:41 pm
harikaried wrote:
Wed Dec 20, 2017 2:38 pm
KlangFool wrote:
Wed Dec 20, 2017 2:04 pm
If the personal exemption is suspended, what is the tax benefit of claiming my children as the dependent? Please enlightened me.
Instead of a ~$4000 exemption, which reduces taxes by $1000 at 25% marginal rate, you get $2000 child tax credit, so roughly $1000 less in income taxes per child.
Or a flat $0 for children 17 and older
I think you get a $500 credit for 17 and older. It's not $2000, but it's not $0.

"Notably, the new rules also include a new $500 (nonrefundable) credit for dependents who are not “qualifying” children (i.e., dependents under age 17). This may include older (e.g., college-aged) children who are still claimed as dependents, and even dependent parents who are being cared for in the home. The new $500 qualifying dependent credit is also subject to the same (higher) income phaseout rules."

https://www.kitces.com/blog/final-gop-t ... trategies/
Thanks.

KlangFool

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DaftInvestor
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Re: Tax Bill Omnibus Thread

Post by DaftInvestor » Wed Dec 20, 2017 2:58 pm

Drew31 wrote:
Wed Dec 20, 2017 2:44 pm
NotWhoYouThink wrote:
Wed Dec 20, 2017 2:41 pm
harikaried wrote:
Wed Dec 20, 2017 2:38 pm
KlangFool wrote:
Wed Dec 20, 2017 2:04 pm
If the personal exemption is suspended, what is the tax benefit of claiming my children as the dependent? Please enlightened me.
Instead of a ~$4000 exemption, which reduces taxes by $1000 at 25% marginal rate, you get $2000 child tax credit, so roughly $1000 less in income taxes per child.
Or a flat $0 for children 17 and older
Except that today you're getting $2000 too from the current CTC of $1000 plus $1000 personal exemption. So it's a wash using your example.
Except the current CTC only applies for married folks under $110,000 while the new CTC looks like it applies to AGIs up to $400,000.
https://www.forbes.com/sites/kellyphill ... 60cd771401

abner kravitz
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Re: Tax Bill Omnibus Thread

Post by abner kravitz » Wed Dec 20, 2017 2:59 pm

mikep wrote:
Wed Dec 20, 2017 2:40 pm
Nate79 wrote:
Wed Dec 20, 2017 1:55 pm
Drew31 wrote:
Wed Dec 20, 2017 1:53 pm
Will be paying Jan and Feb mortgage payments this month. Doesn't look like I'll be itemizing any longer.
I would suggest to check with your mortgage company whether they will report the interest for those payments in 2017 or 2018.
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.

However if I am wrong and you can do Feb.. why stop there? Why not go all the way to Dec or even longer?
You are not wrong - only mortgage interest for a tax year can be legitimately deducted in that year. What the mortgage company reports is a different question.

mffl
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Re: Tax Bill Omnibus Thread

Post by mffl » Wed Dec 20, 2017 2:59 pm

Drew31 wrote:
Wed Dec 20, 2017 2:44 pm
NotWhoYouThink wrote:
Wed Dec 20, 2017 2:41 pm
harikaried wrote:
Wed Dec 20, 2017 2:38 pm
KlangFool wrote:
Wed Dec 20, 2017 2:04 pm
If the personal exemption is suspended, what is the tax benefit of claiming my children as the dependent? Please enlightened me.
Instead of a ~$4000 exemption, which reduces taxes by $1000 at 25% marginal rate, you get $2000 child tax credit, so roughly $1000 less in income taxes per child.
Or a flat $0 for children 17 and older
Except that today you're getting $2000 too from the current CTC of $1000 plus $1000 personal exemption. So it's a wash using your example.
Unless you're over the 110k cap for the current CTC, which you likely are if you're in the 25% bracket.

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WoodSpinner
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Re: Tax Bill Omnibus Thread

Post by WoodSpinner » Wed Dec 20, 2017 3:00 pm

KlangFool wrote:
Wed Dec 20, 2017 2:04 pm
Folks,

If the personal exemption is suspended, what is the tax benefit of claiming my children as the dependent? Please enlightened me.

KlangFool
See section on Child Tax Credit....

Drew31
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Re: Tax Bill Omnibus Thread

Post by Drew31 » Wed Dec 20, 2017 3:00 pm

Nate79 wrote:
Wed Dec 20, 2017 2:54 pm
mikep wrote:
Wed Dec 20, 2017 2:40 pm
Nate79 wrote:
Wed Dec 20, 2017 1:55 pm
Drew31 wrote:
Wed Dec 20, 2017 1:53 pm
Will be paying Jan and Feb mortgage payments this month. Doesn't look like I'll be itemizing any longer.
I would suggest to check with your mortgage company whether they will report the interest for those payments in 2017 or 2018.
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.

However if I am wrong and you can do Feb.. why stop there? Why not go all the way to Dec or even longer?
This is what I thought as well. But I also just called my bank and they said that the interest is reported when paid and that the system let's me prepay the Jan and Feb payments (I'm not sure about beyond that). While I am somewhat dubious that this will actually be reported this way I'm going to go ahead and schedule the payments for Jan and Feb within Dec to see if it works.

I was only comfortable cash flowing through Feb so stopped there, but see your point about no end point. That said, I will probably go ahead with Feb payment as well and we'll see if it works.

harikaried
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Re: Tax Bill Omnibus Thread

Post by harikaried » Wed Dec 20, 2017 3:05 pm

Spirit Rider wrote:
Wed Dec 20, 2017 2:55 pm
The current child tax credit is already $1,000. So instead of $1,000 + ($4,150 * 24% = $996) = $1,996 it will be $2,000, a $4 reduction for someone in the 24% tax bracket.
A married couple in the new 24% tax bracket / old 28% tax bracket would have income over ~$160k, so the old child tax credit would have been phased out to $0, so this couple would be getting net ~$1000 tax back compared to the old ~$4000 personal exemption.

Drew31
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Re: Tax Bill Omnibus Thread

Post by Drew31 » Wed Dec 20, 2017 3:09 pm

abner kravitz wrote:
Wed Dec 20, 2017 2:59 pm
mikep wrote:
Wed Dec 20, 2017 2:40 pm
Nate79 wrote:
Wed Dec 20, 2017 1:55 pm
Drew31 wrote:
Wed Dec 20, 2017 1:53 pm
Will be paying Jan and Feb mortgage payments this month. Doesn't look like I'll be itemizing any longer.
I would suggest to check with your mortgage company whether they will report the interest for those payments in 2017 or 2018.
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.

However if I am wrong and you can do Feb.. why stop there? Why not go all the way to Dec or even longer?
You are not wrong - only mortgage interest for a tax year can be legitimately deducted in that year. What the mortgage company reports is a different question.
Reading Schedule A Instructions page A-7

In general, if you paid interest in 2016 that applies to any period after 2016, you can deduct only amounts that apply for 2016

So look likes I'll only be prepaying Jan.
Last edited by Drew31 on Wed Dec 20, 2017 3:22 pm, edited 1 time in total.

Spirit Rider
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Re: Tax Bill Omnibus Thread

Post by Spirit Rider » Wed Dec 20, 2017 3:11 pm

Stormbringer wrote:
Wed Dec 20, 2017 2:56 pm
rrouse wrote:
Wed Dec 20, 2017 1:42 pm
How does the 20% deduction for pass-through income interact with AMT? It seems like if you had to add the deduction back in, it would negate the benefit (then again, that seems to be the point of AMT).
I haven't been able to find a comprehensive explanation of the pass-through deduction, just some vague information:
  • It starts to phase out at $315,000 (married couple) but how fast isn't clear. Over $100K (MFJ).
  • Limited by W-2 wages paid, or capital investment. And potentially by dividends and capital gains, but I can't decipher how.
  • It looks like passive real estate investments may qualify. NA/Don't know.
  • The deduction appears to be on a business by business basis. Eligibility is based on personal taxable income. Deduction appears to be on "combined qualified business income" (calculated separately) of all businesses subject to limitations and phaseout.
  • Not sure if it is an above or below the line deduction. Since eligibility/phaseout is based on personal taxable income (Form 1040 line 43), it has to be below.
  • Totally unclear how it is affected by AMT. NA/Don't know.

Bacchus01
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Re: Tax Bill Omnibus Thread

Post by Bacchus01 » Wed Dec 20, 2017 3:11 pm

Alex Frakt wrote:
Wed Dec 20, 2017 1:18 pm
Normally we would not open discussion on new bills until they are signed into law. However, given that the new tax act has been approved by both houses and the short period of time left until the end of the year to make any changes, we will open this up for discussion now on this thread.

To the extent possible, let's focus on what should be done now. For example, it appears that it makes sense to make charitable donations for 2017 if the provisions of the act will have you switching from itemized to standard deductions in 2018.
You rock! Thanks!

NotWhoYouThink
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Re: Tax Bill Omnibus Thread

Post by NotWhoYouThink » Wed Dec 20, 2017 3:12 pm

harikaried wrote:
Wed Dec 20, 2017 3:05 pm
Spirit Rider wrote:
Wed Dec 20, 2017 2:55 pm
The current child tax credit is already $1,000. So instead of $1,000 + ($4,150 * 24% = $996) = $1,996 it will be $2,000, a $4 reduction for someone in the 24% tax bracket.
A married couple in the new 24% tax bracket / old 28% tax bracket would have income over ~$160k, so the old child tax credit would have been phased out to $0, so this couple would be getting net ~$1000 tax back compared to the old ~$4000 personal exemption.
Unless the child is over 16.

mffl
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Re: Tax Bill Omnibus Thread

Post by mffl » Wed Dec 20, 2017 3:12 pm

Heh heh, I think we all here can appreciate the following --

"Ultimately, the Tax Cuts and Jobs Act went with the Senate proposal, repealing all miscellaneous itemized deductions that are otherwise subject to the 2%-of-AGI floor under IRC Section 67. This includes all tax preparation expenses, various unreimbursed employee business expenses (including the home office deduction), losses on a variable annuity (or losses below the non-deductible “basis” portion of an IRA or Roth IRA), and a wide range of “expense for the production of income” – including trustee’s and other fees paid on behalf of an IRA, safety deposit box fees, depreciation of home computers used for investments… and the deduction for investment advisory fees."

Emphasis added. :)

Isabelle77
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Re: Tax Bill Omnibus Thread

Post by Isabelle77 » Wed Dec 20, 2017 3:13 pm

Something else to note. No more deductible HELOC interest. We have one with about 40K on it sitting at 3% that we've been neglecting to pay off in order to invest more. May make sense to bite the bullet now.

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jhfenton
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Re: Tax Bill Omnibus Thread

Post by jhfenton » Wed Dec 20, 2017 3:14 pm

harikaried wrote:
Wed Dec 20, 2017 2:38 pm
KlangFool wrote:
Wed Dec 20, 2017 2:04 pm
If the personal exemption is suspended, what is the tax benefit of claiming my children as the dependent? Please enlightened me.
Instead of a ~$4000 exemption, which reduces taxes by $1000 at 25% marginal rate, you get $2000 child tax credit, so roughly $1000 less in income taxes per child.
But that is only true for age 16 and under. At age 17 and above, there is only a $500 credit, not the $2,000. $500 is obviously not a full replacement for the $4,000 exemption at 25%.

We will definitely save money next year, with our kids 16 and 14 at year end = $4,000 credit. 2019 and 2020, we'll be down to $500 + $2,000 = $2,500. 2021, $500 + $500 = $1,000. At that point, we would be saving very little if anything compared to 2017 (assuming nothing changes in the interim).

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jhfenton
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Re: Tax Bill Omnibus Thread

Post by jhfenton » Wed Dec 20, 2017 3:16 pm

NotWhoYouThink wrote:
Wed Dec 20, 2017 2:41 pm
harikaried wrote:
Wed Dec 20, 2017 2:38 pm
KlangFool wrote:
Wed Dec 20, 2017 2:04 pm
If the personal exemption is suspended, what is the tax benefit of claiming my children as the dependent? Please enlightened me.
Instead of a ~$4000 exemption, which reduces taxes by $1000 at 25% marginal rate, you get $2000 child tax credit, so roughly $1000 less in income taxes per child.
Or a flat $0 for children 17 and older
There is a $500 Dependent Credit for 17 and older. Not $2,000, but not $0.

Lynette
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Re: Tax Bill Omnibus Thread

Post by Lynette » Wed Dec 20, 2017 3:16 pm

Is there any change to charitable contributions for those of us doing RMDs? Can we still deduct QCDs from our AGI? I'm trying to stay in the lower IRMAA bracket. I think this make more sense for me than a DAF.

Thanks,

Lynette

mikep
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Re: Tax Bill Omnibus Thread

Post by mikep » Wed Dec 20, 2017 3:16 pm

Does anyone know of anything there of tax rate arbitrage on state income tax refunds?

Before I was very wary of state tax refunds since they swallowed $50 of a child tax credit if they bumped my AGI to the next $1xx,000 zone.

First step is making sure I don't owe 2017 state taxes when I file in 2018.

Now it appears I can deduct state tax at 25% and get taxed on the refund at 22% next year..with the added bonus of being way under the child credit phaseout zone. My only limit being AMT if I push as far as possible. I wouldn't want to push too far to influence IRA eligibility limit or something but it got me thinking I could net $30 for every $1000 state refund I get.
Last edited by mikep on Wed Dec 20, 2017 3:17 pm, edited 1 time in total.

Bacchus01
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Re: Tax Act Omnibus Thread

Post by Bacchus01 » Wed Dec 20, 2017 3:17 pm

harikaried wrote:
Wed Dec 20, 2017 1:26 pm
This was shared in the previous thread for some basic playing around with AGI and how the deduction/exemption/credit/rate changes affect the total federal income tax:

http://taxplancalculator.com/

In particular, for those who would have itemized, it might show that in 2018+, you will be taking the standard deduction, so as Alex pointed out, maybe donate to charity sooner in 2017. (But not prepay 2018 property taxes as those will be counted towards 2018 tax year and not be allowed for 2017.)
We are ones that will move to the standard deduction going forward.

Frankly, it seems like a lot of simplification of the code.

Silk McCue
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Re: Tax Bill Omnibus Thread

Post by Silk McCue » Wed Dec 20, 2017 3:18 pm

Lynette wrote:
Wed Dec 20, 2017 3:16 pm
Is there any change to charitable contributions for those of us doing RMDs? Can we still deduct QCDs from our AGI? I'm trying to stay in the lower IRMAA bracket. I think this make more sense for me than a DAF.

Thanks,

Lynette

QCDs are still available.

Bacchus01
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Re: Tax Bill Omnibus Thread

Post by Bacchus01 » Wed Dec 20, 2017 3:19 pm

sunny_socal wrote:
Wed Dec 20, 2017 1:39 pm
Thanks for the calculator, looks like I'll be saving ~$3k next year :beer
Mine showed about $8K

Lynette
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Re: Tax Bill Omnibus Thread

Post by Lynette » Wed Dec 20, 2017 3:19 pm

Silk McCue wrote:
Wed Dec 20, 2017 3:18 pm
Lynette wrote:
Wed Dec 20, 2017 3:16 pm
Is there any change to charitable contributions for those of us doing RMDs? Can we still deduct QCDs from our AGI? I'm trying to stay in the lower IRMAA bracket. I think this make more sense for me than a DAF.

Thanks,

Lynette

QCDs are still available.
Thanks,

Stormbringer
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Re: Tax Bill Omnibus Thread

Post by Stormbringer » Wed Dec 20, 2017 3:20 pm

If you don't itemize (i.e. you take the standard deduction), does AMT ever apply?
"Compound interest is the most powerful force in the universe." - Albert Einstein

Isabelle77
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Re: Tax Act Omnibus Thread

Post by Isabelle77 » Wed Dec 20, 2017 3:22 pm

Bacchus01 wrote:
Wed Dec 20, 2017 3:17 pm
harikaried wrote:
Wed Dec 20, 2017 1:26 pm
This was shared in the previous thread for some basic playing around with AGI and how the deduction/exemption/credit/rate changes affect the total federal income tax:

http://taxplancalculator.com/

In particular, for those who would have itemized, it might show that in 2018+, you will be taking the standard deduction, so as Alex pointed out, maybe donate to charity sooner in 2017. (But not prepay 2018 property taxes as those will be counted towards 2018 tax year and not be allowed for 2017.)
We are ones that will move to the standard deduction going forward.

Frankly, it seems like a lot of simplification of the code.
Yes, I think we will as well. Also, since I think home office and business expenses are also now gone, I guess we can fire our CPA :sharebeer

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rcjchicity
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Re: Tax Bill Omnibus Thread

Post by rcjchicity » Wed Dec 20, 2017 3:24 pm

Any AMT gurus out there?

Our county allows prepayment of property taxes. However, we get hit with AMT, so I'm not sure that accelerating the payment to this year would make up for the loss of the SALT deductions > $10,000 next year. (We will still be able to itemize next year's returns with our mortgage interest + charitable contributions + $10,000 of state taxes)

Here are our 2016 numbers (2017 is going to be similar)
AGI: $390,000
Itemized deductions: $51,000. $12,000 of that was property taxes
AMT $3,100
Pease tax $2,400

Wondering if it's worthwhile to spend tonight buried in past 1040's trying to crunch numbers, or say forget it and sit back with a beer surfing Bogleheads instead. :sharebeer

Bacchus01
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Re: Tax Bill Omnibus Thread

Post by Bacchus01 » Wed Dec 20, 2017 3:25 pm

mffl wrote:
Wed Dec 20, 2017 2:12 pm
KlangFool wrote:
Wed Dec 20, 2017 2:04 pm
Folks,

If the personal exemption is suspended, what is the tax benefit of claiming my children as the dependent? Please enlightened me.

KlangFool
The bigger child tax credit, which is now $2000 instead of $1000 and applies to married couples up to 400k and individuals up to 200k.

It takes the combination of the bigger CTC (and higher phaseout limits) and the bigger standard deduction to offset the loss of personal exemptions. But in the end, it more than offsets it.
So if your income looks like it might be a hair over $400K, you probably want to get it under $400K to take the credit, right?

letsgobobby
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Re: Tax Bill Omnibus Thread

Post by letsgobobby » Wed Dec 20, 2017 3:25 pm

we appear to be in a sweet spot. no impact on our deductions, expanded child credit, lower tax brackets, reduced AMT, and no PEP or Pease makes for quite a reduction in liability.
Last edited by letsgobobby on Wed Dec 20, 2017 3:27 pm, edited 1 time in total.

Isabelle77
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Re: Tax Bill Omnibus Thread

Post by Isabelle77 » Wed Dec 20, 2017 3:25 pm

Given my reading of the bill, would it make sense to also buy any updated home office necessities before January 1? My husband does voiceover work and will need new software and probably a microphone in the coming year or two.

Thoughts?

abner kravitz
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Re: Tax Bill Omnibus Thread

Post by abner kravitz » Wed Dec 20, 2017 3:27 pm

One thing I haven't seen mentioned (maybe missed it) is that the medical expense threshold is being lowered retroactively. It was 10% of AGI for people under 65, and it is going to 7.5% for tax year 2017. For some who won't be able to itemize next year, this could help.

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