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
mffl
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Re: Tax Bill Omnibus Thread

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

Bacchus01 wrote:
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?
It phases out, so it doesn't go away all at once. But it's probably based off AGI as it has been in the past, meaning you can only use above the line deductions (or don't take income) to affect it.

Small Law Survivor
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Re: Tax Bill Omnibus Thread

Post by Small Law Survivor » Wed Dec 20, 2017 3:28 pm

pshonore wrote:
Wed Dec 20, 2017 1:37 pm
1. Recharacterization of Roth IRA Conversions will be gone as of 1/1/18. Think you may still be able to undo a 2017 conversion next year until October, but don't take my word for it. No more doing multiple conversions and undoing the least profitable. I didn't think that was widespread and I'm surprised it got noticed
I think this issue is unresolved - it is ambiguous under the language of the Act, and I'm not sure we'll have a definitive answer before the end of the year.

bsteiner
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Re: Tax Bill Omnibus Thread

Post by bsteiner » Wed Dec 20, 2017 3:28 pm

letsgobobby wrote:
Wed Dec 20, 2017 2:01 pm
Are the new estate tax exemptions permament, or do they grandfather in some future year? Are they adjusted for inflation?
The estate and gift tax exclusion and the GST exemption are doubled for 2018 through 2025, and revert to current law in 2026. They are adjusted for inflation.

So we're recommending that some clients give away another $5+ million ($11+ million if they're married) in 2018.

RustyShackleford
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Re: Tax Bill Omnibus Thread

Post by RustyShackleford » Wed Dec 20, 2017 3:29 pm

TG2 wrote:
Wed Dec 20, 2017 2:26 pm
letsgobobby wrote:
Wed Dec 20, 2017 1:59 pm

SALT definitely includes property tax.

Separate from that, the new law prohibits prepaying only state income taxes, but not property tax.
The problem though is that your state or county has to allow the prepayment of property tax. I was getting all ready to go in and give them a $10,000 check to prepay 2018 property taxes but then checked the county website.
I'm happy to say that my county DOES allow prepayment of 2018 property taxes (I called and they said they'd been getting many calls about this). They've actually set up special "prepayment accounts". Naturally, they refuse to opine as the whether it's actually legit to deduct those 2018 prepayments in 2017; so I'm happy to see that the consensus here is that it IS legit.

Interestingly, my county seems to have a history of looking out for taxpayers. Even prior to this new tax bill, property taxes for year i were considered not to be delinquent if they were made during the first week or so of year i+1. VERY convenient for deduction bunching. But my deduction bunching days are over: I have no mortgage interest and minimal state income tax; plus, impending nuptials will double the standard deduction without adding any deductible things to speak of.
Last edited by RustyShackleford on Wed Dec 20, 2017 3:31 pm, edited 1 time in total.

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rcjchicity
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Re: Tax Bill Omnibus Thread

Post by rcjchicity » Wed Dec 20, 2017 3:30 pm

Bacchus01 wrote:
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!
+1,000 There's been a palpable tension on this forum for the past few weeks with people just itching for something to get passed so we could start talking about new strategies!

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Noobvestor
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Re: Tax Bill Omnibus Thread

Post by Noobvestor » Wed Dec 20, 2017 3:31 pm

Spirit Rider wrote:
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.
This is simplified, but not hypothetical: what's the general impact for someone with combined employee, investment and pass-through income?

* $80,000/year in ordinary wages
* $20,000/year in LLC pass-through business income
* $20,000/year in taxable dividends

Are there any calculators live yet for this kind of thing? They mostly seem to be wage-based.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

dad2000
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Re: Tax Bill Omnibus Thread

Post by dad2000 » Wed Dec 20, 2017 3:33 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.
  • 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.
Disclaimer: I am terrible at reading these bills, so I may be very wrong on this:

For MFJ, the bill allows a full 20% deduction up to the $315k. It then appears that the deduction for MFJ phases out over the next $100k (ie from $315k to $415k). The deduction in that range is based on the ratio of (excess amount/$100k).

I'm not sure how this ratio is applied, but my guess is as follows: Let's say, you made $365k. The I think the excess amount is calculated as $365k-$315k=$50k, and the ratio is therefore $50k/100k or 50%. You'd then get a 10% (50% of 20%) deduction against the $365k, or $36,500.

The bill also states that the deduction affects taxable income, but not Adjusted Gross Income. I think this means it's below the line.

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FrugalProfessor
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Re: Tax Bill Omnibus Thread

Post by FrugalProfessor » Wed Dec 20, 2017 3:38 pm

I have written fairly comprehensive Excel models for 2017 and 2018 taxes. Available for download at bottom of this page: https://www.frugalprofessor.com/model-o ... ompromise/.

The 2017 model is accurate to within $5 for all scenarios I've thrown at it, with the caveat that it doesn't have TIRA deductibility coded in. The 2018 model should be very accurate as well. The new tax code is almost identical to the old one with only a few parameters changed.

I also commented on last minute tax planning moves here: https://www.frugalprofessor.com/year-en ... ing-moves/. The ideas shared are similar to those discussed in this thread.
I blog. Taxes are the lowest hanging source of alpha.

cherijoh
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Re: Tax Bill Omnibus Thread

Post by cherijoh » Wed Dec 20, 2017 3:40 pm

Tanelorn wrote:
Wed Dec 20, 2017 1:48 pm
This is a good personal summary of tax changes for individuals.

https://www.kitces.com/blog/final-gop-t ... trategies/
Did anyone else notice the differences between single and MFJ rates? Kitces has a horizontal bar chart on ~ page 5 of this article comparing current law and the final GOP plan.
  • For MFJ, the new 24% bracket extends into the middle of what would have been the 33% bracket. They'll get a big drop.
  • For single filers, the new 24% bracket ends in the middle of the old 28% bracket. Therefore single filers currently in the upper half of the 28% bracket are in for a rude awakening when they find themselves in the 32% bracket.
  • In addition, most singles in the 33% marginal bracket are getting bumped up to 35%.
The chart isn't well annotated, but it appears that the green in the middle bar represents a reduction in marginal tax bracket while the red represents an increase in marginal tax bracket. White means the same rate. There is a whole lot more red on the single filers chart! :annoyed Higher income single filers are likely to have a higher marginal bracket over a wide range of taxable income.

mffl
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Re: Tax Bill Omnibus Thread

Post by mffl » Wed Dec 20, 2017 3:42 pm

dad2000 wrote:
Wed Dec 20, 2017 3:33 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.
  • 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.
Disclaimer: I am terrible at reading these bills, so I may be very wrong on this:

For MFJ, the bill allows a full 20% deduction up to the $315k. It then appears that the deduction for MFJ phases out over the next $100k (ie from $315k to $415k). The deduction in that range is based on the ratio of (excess amount/$100k).

I'm not sure how this ratio is applied, but my guess is as follows: Let's say, you made $365k. The I think the excess amount is calculated as $365k-$315k=$50k, and the ratio is therefore $50k/100k or 50%. You'd then get a 10% (50% of 20%) deduction against the $365k, or $36,500.

The bill also states that the deduction affects taxable income, but not Adjusted Gross Income. I think this means it's below the line.
Also, it looks like those of us eligible for the pass through deduction may need to blow off the concept of bunching? If it's a below the line deduction, I'd think that plus SALT and mortage interest would push most of us over the standard deduction.....

annielouise
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Re: Tax Bill Omnibus Thread

Post by annielouise » Wed Dec 20, 2017 3:43 pm

mffl wrote:
Wed Dec 20, 2017 1:53 pm
KlangFool wrote:
Wed Dec 20, 2017 1:50 pm
Folks,

As per my understanding, I should donate to the charity now for whatever amount that I budgeted for next year. This is true if my total itemized deduction for 2018 will not exceed the new standard deduction limit.

Please confirm.

KlangFool
Yep, that's my understanding. I'm currently considering contributing perhaps even several years' worth of charitable contributions in 2017 using a Donor Advised Fund, and then distributing the money to the charities whenever I see fit, and taking those capital gains off the table too. The impact of the tax bracket reduction going into 2018, plus taking the standard deduction for a few years, plus the cap gains benefit is pretty hard to ignore.
We are now donating 5 years worth to our DAF. Will just take standard deduction for the next 5 years. We were already over the 2017 standard deduction, so we get a 25% refund on our additional contributions. That $10k cap kills our every other year itemizing plan for post-mortgage years.

indyfish
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Re: Tax Bill Omnibus Thread

Post by indyfish » Wed Dec 20, 2017 3:45 pm

I think our family is in a sweet spot to do partial Roth Conversions when we otherwise really couldn't. Our AGI will be right around the 110K mark with dependent child. This means we were at the 25% bracket but the $1000 child tax credit phasing out at $50 per $1000 over the 110K AGI. Meaning Roth conversions were not a good idea for us.

Now, the child tax credit will not phase out for us, and we can do conversions at the 22% tax bracket. I expect us to be in a higher tax bracket in retirement, so I think this is an easy decision for us.

bsteiner
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Re: Tax Bill Omnibus Thread

Post by bsteiner » Wed Dec 20, 2017 3:48 pm

cherijoh wrote:
Wed Dec 20, 2017 3:40 pm
...
Did anyone else notice the differences between single and MFJ rates? ...
For some time, the joint brackets were double the width of the single brackets for the lower brackets. That will now be the case up through the 24% bracket. That will allow more IRA owners filing joint returns to convert within the 24% or lower bracket.

deanmoriarty
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Re: Tax Bill Omnibus Thread

Post by deanmoriarty » Wed Dec 20, 2017 3:50 pm

Hi.

I have a question on this, and in particular regarding the AMT.

This year I will have the unfortunate experience (was planned) of paying 50k additional dollars in taxes because I exercised a significant amount of incentive stock options, and since those are counted for AMT purposes but not regular income, I fall under the AMT.

My W2 income is ~300k$ (CA state) and the vast majority of my total income is from that. Exercising those options brought my AMTI to ~450k, hence the additional taxes I have to pay by April 2018 since I don't plan on liquidating those shares any time soon (illiquid market).

I was reading up on the new bill and it seems like from 2018 the AMT exemption for a single person (my case) will be raised from $55,400 to $70,300 and, most importantly, the phase-out income level will be raised from $123,100 to $500,000, which should largely benefit me if I correctly understand.

My question for you is: does that practically mean that, since my W2 income level for 2018 will stay the same, I will essentially be able to recoup a large amount of this 50k next year because of the AMT tax credit I will generate this year, and the much lower amount of AMT that will be generated next year because of these more generous exemptions and phase-out (plus the inability to claim SALT deductions on federal, which normally contributes to AMT)?

Am I day dreaming? Will there be any "gotchas" that will make recouping those 50k long and painful, if at all possible?

Thanks
Last edited by deanmoriarty on Wed Dec 20, 2017 3:58 pm, edited 1 time in total.

Buffetologist
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Re: Tax Bill Omnibus Thread

Post by Buffetologist » Wed Dec 20, 2017 3:57 pm

RustyShackleford wrote:
Wed Dec 20, 2017 3:29 pm
I'm happy to say that my county DOES allow prepayment of 2018 property taxes (I called and they said they'd been getting many calls about this). They've actually set up special "prepayment accounts". Naturally, they refuse to opine as the whether it's actually legit to deduct those 2018 prepayments in 2017; so I'm happy to see that the consensus here is that it IS legit.
Is it legit?

I'd like understand this better (I started another thread). I'm not sure I understand when a tax has been "imposed" which is part of the two part test in Pub 17 to determine if a tax is deductible. (The other is that it is paid in the year for which it is being deducted).

When is a property tax bill for the fiscal 2018-2019 (July-July) considered "imposed"? When they issue a bill (which would be 2018) or when they know the exact amount and are willing to accept a payment (which would be in Dec 2017).

DCChak
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Re: Tax Bill Omnibus Thread

Post by DCChak » Wed Dec 20, 2017 3:58 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
KlangFool,

The WaPo had an article out this morning on your relative plight - https://www.washingtonpost.com/news/won ... 202&wpmm=1

Theseus
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Re: Tax Bill Omnibus Thread

Post by Theseus » Wed Dec 20, 2017 3:58 pm

rcjchicity wrote:
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
I am in a similar situation. I have been running various scenarios with my DAF contributions and other itemized deductions. But when I doubled my property tax deduction, my federal taxes did not reduce at all. Only the state tax. So I am thinking of not prepaying - even though my county confirmed that they will accept it.

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UpsetRaptor
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Re: Tax Bill Omnibus Thread

Post by UpsetRaptor » Wed Dec 20, 2017 4:00 pm

If you send your kids to private K-12 school, can't you totally game the new 529 rules now for increased state deductions if you're in a qualifying state?

Me, for example: State of Missouri has up to $16K deduction for 529 contributions for married couples. We have 3 pre-college aged kids, two in private elementary school, tution $4k apiece, and then a baby. I normally contribute 2K per year per kid into 529s for college (so $6K aggregate) while cash flowing private elementary tuition.

Can't I do this now:
- Withdraw 4K from each of the older kids' 529 for qualifying tuition.
- Contribute $14K to Baby's 529 (my normal $6K plus the $4K I just withdrew from each of the other two's 529)
- Now I get $14k state tax deduction
- When each of the older two gets near college, just do a transfer/rollover up from Baby's 529 to make things fairish.

1) Anybody see any problems with this?
2) Do I even need to utilize the Baby's 529 and then future transfer trick, or can I just straight up withdraw $4K qualified while simultaneously contributing $6K for each of the older two, and get the extra deduction? Or would those offset?

Grt2bOutdoors
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Re: Tax Bill Omnibus Thread

Post by Grt2bOutdoors » Wed Dec 20, 2017 4:05 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
You can claim a $2k tax credit per child up to age of 17, thereafter dependents are eligible for $500 tax credit.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

pshonore
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Re: Tax Bill Omnibus Thread

Post by pshonore » Wed Dec 20, 2017 4:06 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.
  • 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.
There is also a limitation for "service businesses" (lawyers, doctors, consultants, etc.) The original intent was to help owners who employ others in capital-intensive businesses. It will probably take until this time next year to figure out all the strategies and nuances

Isabelle77
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Re: Tax Bill Omnibus Thread

Post by Isabelle77 » Wed Dec 20, 2017 4:06 pm

johne417 wrote:
Wed Dec 20, 2017 4:00 pm
If you send your kids to private K-12 school, can't you totally game the new 529 rules now for increased state deductions if you're in a qualifying state?

Me, for example: State of Missouri has up to $16K deduction for 529 contributions for married couples. We have 3 pre-college aged kids, two in private elementary school, tution $4k apiece, and then a baby. I normally contribute 2K per year per kid into 529s for college (so $6K aggregate) while cash flowing private elementary tuition.

Can't I do this now:
- Withdraw 4K from each of the older kids' 529 for qualifying tuition.
- Contribute $14K to Baby's 529 (my normal $6K plus the $4K I just withdrew from each of the other two's 529)
- Now I get $14k state tax deduction
- When each of the older two gets near college, just do a transfer/rollover up from Baby's 529 to make things fairish.

1) Anybody see any problems with this?
2) Do I even need to utilize the Baby's 529 and then future transfer trick, or can I just straight up withdraw $4K qualified while simultaneously contributing $6K for each of the older two, and get the extra deduction? Or would those offset?
Yes, I believe so. The article I read said up to $10K a year but I'm not sure if that's per child or per household. I imagine per child.
http://money.cnn.com/2017/12/20/pf/priv ... index.html

NYC_Guy
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Re: Tax Bill Omnibus Thread

Post by NYC_Guy » Wed Dec 20, 2017 4:09 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.
But delay your charitable deductions if you are in a high SALT state, will itemize in both 2017 and 2018 and your effective rate will be going up.

livesoft
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Re: Tax Bill Omnibus Thread

Post by livesoft » Wed Dec 20, 2017 4:10 pm

Grt2bOutdoors wrote:
Wed Dec 20, 2017 4:05 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
You can claim a $2k tax credit per child up to age of 17, thereafter dependents are eligible for $500 tax credit.
So is a spouse a dependent? For instance, I have no earned taxable income and do not foresee ever having any, so I am totally depending on my spouse.
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Chicago60
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Re: Tax Bill Omnibus Thread

Post by Chicago60 » Wed Dec 20, 2017 4:15 pm

livesoft wrote:
Wed Dec 20, 2017 4:10 pm
Grt2bOutdoors wrote:
Wed Dec 20, 2017 4:05 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
You can claim a $2k tax credit per child up to age of 17, thereafter dependents are eligible for $500 tax credit.
So is a spouse a dependent? For instance, I have no earned taxable income and do not foresee ever having any, so I am totally depending on my spouse.
Not in the legal or taxable sense of the word: https://apps.irs.gov/app/understandingT ... d04_01.jsp
but perhaps morally and practically.

Silk McCue
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Re: Tax Bill Omnibus Thread

Post by Silk McCue » Wed Dec 20, 2017 4:16 pm

livesoft wrote:
Wed Dec 20, 2017 4:10 pm
Grt2bOutdoors wrote:
Wed Dec 20, 2017 4:05 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
You can claim a $2k tax credit per child up to age of 17, thereafter dependents are eligible for $500 tax credit.
So is a spouse a dependent? For instance, I have no earned taxable income and do not foresee ever having any, so I am totally depending on my spouse.
I don't think you are a dependent. You sound more like gigolo! :shock:

SlowMovingInvestor
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Re: Tax Bill Omnibus Thread

Post by SlowMovingInvestor » Wed Dec 20, 2017 4:17 pm

annielouise wrote:
Wed Dec 20, 2017 3:43 pm
mffl wrote:
Wed Dec 20, 2017 1:53 pm
KlangFool wrote:
Wed Dec 20, 2017 1:50 pm
Folks,

As per my understanding, I should donate to the charity now for whatever amount that I budgeted for next year. This is true if my total itemized deduction for 2018 will not exceed the new standard deduction limit.

Please confirm.

KlangFool
Yep, that's my understanding. I'm currently considering contributing perhaps even several years' worth of charitable contributions in 2017 using a Donor Advised Fund, and then distributing the money to the charities whenever I see fit, and taking those capital gains off the table too. The impact of the tax bracket reduction going into 2018, plus taking the standard deduction for a few years, plus the cap gains benefit is pretty hard to ignore.
We are now donating 5 years worth to our DAF. Will just take standard deduction for the next 5 years. We were already over the 2017 standard deduction, so we get a 25% refund on our additional contributions. That $10k cap kills our every other year itemizing plan for post-mortgage years.
I'd never even thought of DAFs before, but now it seemed like it might make sense to create one this year, since I would need to contribute 14K+ in subsequent years to get any benefit from charitable contribs. But logistically, is it even possible to get this done by the end of the year ?

1) Create a DAF at say Fido (where I have plenty of other accounts)
2) Transfer appreciated assets to the DAF (from other Fido accounts)

Compounding the timing issues is the fact that I'm out of the country until the morning of Dec 30th :(

SlowMovingInvestor
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Re: Tax Bill Omnibus Thread

Post by SlowMovingInvestor » Wed Dec 20, 2017 4:18 pm

NYC_Guy wrote:
Wed Dec 20, 2017 4:09 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.
But delay your charitable deductions if you are in a high SALT state, will itemize in both 2017 and 2018 and your effective rate will be going up.
Why does effective rate matter ? Surely, its' marginal rate that matters when you decide whether to increase charitable contributions ?

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alpenglow
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Re: Tax Bill Omnibus Thread

Post by alpenglow » Wed Dec 20, 2017 4:19 pm

I read the language of my property tax bill. It clearly states, "Due Dec 1, 2017, Payable until May 25, 2018." I think I am well within the law to pay the entire amount in 2017 to capture the deduction. Yay!

letsgobobby
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Re: Tax Bill Omnibus Thread

Post by letsgobobby » Wed Dec 20, 2017 4:21 pm

SlowMovingInvestor wrote:
Wed Dec 20, 2017 4:17 pm
annielouise wrote:
Wed Dec 20, 2017 3:43 pm
mffl wrote:
Wed Dec 20, 2017 1:53 pm
KlangFool wrote:
Wed Dec 20, 2017 1:50 pm
Folks,

As per my understanding, I should donate to the charity now for whatever amount that I budgeted for next year. This is true if my total itemized deduction for 2018 will not exceed the new standard deduction limit.

Please confirm.

KlangFool
Yep, that's my understanding. I'm currently considering contributing perhaps even several years' worth of charitable contributions in 2017 using a Donor Advised Fund, and then distributing the money to the charities whenever I see fit, and taking those capital gains off the table too. The impact of the tax bracket reduction going into 2018, plus taking the standard deduction for a few years, plus the cap gains benefit is pretty hard to ignore.
We are now donating 5 years worth to our DAF. Will just take standard deduction for the next 5 years. We were already over the 2017 standard deduction, so we get a 25% refund on our additional contributions. That $10k cap kills our every other year itemizing plan for post-mortgage years.
I'd never even thought of DAFs before, but now it seemed like it might make sense to create one this year, since I would need to contribute 14K+ in subsequent years to get any benefit from charitable contribs. But logistically, is it even possible to get this done by the end of the year ?

1) Create a DAF at say Fido (where I have plenty of other accounts)
2) Transfer appreciated assets to the DAF (from other Fido accounts)

Compounding the timing issues is the fact that I'm out of the country until the morning of Dec 30th :(
you can do it all online in less than 15 minutes, but i wouldn’t wait til December 30, which is part of a long holiday weekend extending into 2018. i think you'd be ok but it might be cleaner to have the transaction cleared before the end of the year.

TLC
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Re: Tax Bill Omnibus Thread

Post by TLC » Wed Dec 20, 2017 4:21 pm

What about the impact to state income tax filings?

My state requires you to claim the standard deduction if you do so with your federal return. Likewise, if you itemize on your federal return, you must itemize on your state return. The federal standard deduction has been increased to partially compensate for the capping of the SALT and mortgage interest deductions, but my state has not (to date) done the same.

I'm mentioning this in this planning thread because there might be cases where you should continue to itemize at the federal level even though it would be less than the standard deduction in order to achieve even less liability at the state level.

harikaried
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Re: Tax Bill Omnibus Thread

Post by harikaried » Wed Dec 20, 2017 4:26 pm

DCChak wrote:
Wed Dec 20, 2017 3:58 pm
KlangFool wrote:
Wed Dec 20, 2017 2:40 pm
Pardon my ignorance, my kids are in college. They are more than 17 years old and less than 24 years old.
The WaPo had an article out this morning on your relative plight
The example from WaPo's article with $100,000 married couple with 2 children "the parents lose out," but that's just looking at just the exemptions and credits. Tax rates are also going down in addition to various shuffling.

Before: $30k exemption / deduction -> $70k taxable income = $10k tax
After: $24k deduction -> $76k taxable income -> $9k tax - 2x $500 family credit = $8k tax

At a very high level over 10 years, the federal government gets $1.2 trillion less from the lower tax rates but matches that with $1.2 trillion "regained" from eliminating personal exemptions. The increased standard deduction is $700 billion less taxes but also similarly matches $700 billion from limiting itemized deductions. The increased AMT exemption reduces taxes by $600 billion, larger child / family tax credit by $600 billion, and 20% passthrough business income deduction by $400 billion. So one way to look at it is the tax rate, exemptions and deductions changes are a wash on average, so the winners are those who benefit from the changes to AMT, child tax credit, and passthrough businesses. https://www.cnbc.com/2017/12/16/here-ar ... -vote.html

winterfan
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Re: Tax Bill Omnibus Thread

Post by winterfan » Wed Dec 20, 2017 4:34 pm

Smorgasbord wrote:
Wed Dec 20, 2017 1:38 pm
Well, it looks like 529 plans just got a whole lot more interesting:
TREATMENT OF ELEMENTARY AND SECONDARY TUITION.—Any reference in this subsection to the term ‘qualified higher education expense’ shall include a reference to expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school.”.
I for one am going to take a good look at upping my contributions for my preschool aged kids.
That is interesting! I have a grade schooler that will probably go to private HS. I may have to contribute more to this account now, especially if DH will be done working by then (likely!). I do have concerns with having too much in the account though, in case something like this is overturned by the time she gets to HS.

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Watty
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Re: Tax Bill Omnibus Thread

Post by Watty » Wed Dec 20, 2017 4:35 pm

There is one twist to keep in mind that I have not seen mentioned.

Some states require you to either use the standard deduction or itemized your deductions on your state tax return the same way that you did on your federal tax return.

I don't remember the details off the top of my head but in my state itemized deduction on the state tax return are based on your federal itemized deduction with some adjustments. I don't know if that would be impacted by the SALT limitations on the federal form if the state does not change their calculations.

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Re: Tax Bill Omnibus Thread

Post by jebmke » Wed Dec 20, 2017 4:36 pm

TLC wrote:
Wed Dec 20, 2017 4:21 pm
What about the impact to state income tax filings?

My state requires you to claim the standard deduction if you do so with your federal return. Likewise, if you itemize on your federal return, you must itemize on your state return. The federal standard deduction has been increased to partially compensate for the capping of the SALT and mortgage interest deductions, but my state has not (to date) done the same.

I'm mentioning this in this planning thread because there might be cases where you should continue to itemize at the federal level even though it would be less than the standard deduction in order to achieve even less liability at the state level.
This is true in Maryland even under current law. At our TaxAide sites we often check both ways and frequently it pays to force itemization on Federal taxes to enable the taxpayer to itemize on the state return.
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cherijoh
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Re: Tax Bill Omnibus Thread

Post by cherijoh » Wed Dec 20, 2017 4:37 pm

bsteiner wrote:
Wed Dec 20, 2017 3:48 pm
cherijoh wrote:
Wed Dec 20, 2017 3:40 pm
...
Did anyone else notice the differences between single and MFJ rates? ...
For some time, the joint brackets were double the width of the single brackets for the lower brackets. That will now be the case up through the 24% bracket. That will allow more IRA owners filing joint returns to convert within the 24% or lower bracket.
But my perspective is that of a single person - although currently in the 25% (not 28%) marginal bracket.

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AOTC

Post by markcoop » Wed Dec 20, 2017 4:39 pm

I believe at one point I saw that the American Opportunity Tax Credit was going to be expanded to 5 years, with the fifth year being a smaller credit. Is that still true?

Thanks
Mark

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CAsage
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Re: Tax Bill Omnibus Thread

Post by CAsage » Wed Dec 20, 2017 4:39 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?
I was one of the Roth Recharacterization practitioners. Oh well. So, I have already recharacterized my loser Roth conversions for this year, due to a personal preference to keep each tax year complete and separate.

For next year.... I am considering doing my Roth conversions, Total Stock or Total International Stock, in a more dollar cost average method, either monthly or quarterly, because we all know a correction is coming... eventually.

And I have opened for the first time, a Donor Advised Fund with about 10 years worth in it.
Last edited by CAsage on Wed Dec 20, 2017 4:42 pm, edited 1 time in total.
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Theseus
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Re: Tax Bill Omnibus Thread

Post by Theseus » Wed Dec 20, 2017 4:40 pm

SlowMovingInvestor wrote:
Wed Dec 20, 2017 4:17 pm

I'd never even thought of DAFs before, but now it seemed like it might make sense to create one this year, since I would need to contribute 14K+ in subsequent years to get any benefit from charitable contribs. But logistically, is it even possible to get this done by the end of the year ?

1) Create a DAF at say Fido (where I have plenty of other accounts)
2) Transfer appreciated assets to the DAF (from other Fido accounts)

Compounding the timing issues is the fact that I'm out of the country until the morning of Dec 30th :(
I just opened DAF at Fidelity. I am a fidelity customer and it took me 5 minutes to open an account online and link it to my personal account. I also talked to the support person after that. He said I can fund it even until 31st (they are going to keep special hours even though 30-31st is a weekend). According to him, it is just a book keeping entry. But obviously I am not going to wait till that long. But may help you in your situation.

Only thing is my stock will be sold and I will have to pick one of their 20+ funds.

mffl
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Re: Tax Bill Omnibus Thread

Post by mffl » Wed Dec 20, 2017 4:40 pm

SlowMovingInvestor wrote:
Wed Dec 20, 2017 4:17 pm
annielouise wrote:
Wed Dec 20, 2017 3:43 pm
mffl wrote:
Wed Dec 20, 2017 1:53 pm
KlangFool wrote:
Wed Dec 20, 2017 1:50 pm
Folks,

As per my understanding, I should donate to the charity now for whatever amount that I budgeted for next year. This is true if my total itemized deduction for 2018 will not exceed the new standard deduction limit.

Please confirm.

KlangFool
Yep, that's my understanding. I'm currently considering contributing perhaps even several years' worth of charitable contributions in 2017 using a Donor Advised Fund, and then distributing the money to the charities whenever I see fit, and taking those capital gains off the table too. The impact of the tax bracket reduction going into 2018, plus taking the standard deduction for a few years, plus the cap gains benefit is pretty hard to ignore.
We are now donating 5 years worth to our DAF. Will just take standard deduction for the next 5 years. We were already over the 2017 standard deduction, so we get a 25% refund on our additional contributions. That $10k cap kills our every other year itemizing plan for post-mortgage years.
I'd never even thought of DAFs before, but now it seemed like it might make sense to create one this year, since I would need to contribute 14K+ in subsequent years to get any benefit from charitable contribs. But logistically, is it even possible to get this done by the end of the year ?

1) Create a DAF at say Fido (where I have plenty of other accounts)
2) Transfer appreciated assets to the DAF (from other Fido accounts)

Compounding the timing issues is the fact that I'm out of the country until the morning of Dec 30th :(
I think so. I opened mine in October. I think it was opened and usable immediately. I think it took 2 days for the assets to transfer, but the important date may be the date you initiated the transfer anyway. Fido reps we're super helpful. Worth a call.

The Wizard
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Re: Tax Bill Omnibus Thread

Post by The Wizard » Wed Dec 20, 2017 4:42 pm

FrugalProfessor wrote:
Wed Dec 20, 2017 3:38 pm
I have written fairly comprehensive Excel models for 2017 and 2018 taxes. Available for download at bottom of this page: https://www.frugalprofessor.com/model-o ... ompromise/.

The 2017 model is accurate to within $5 for all scenarios I've thrown at it, with the caveat that it doesn't have TIRA deductibility coded in. The 2018 model should be very accurate as well. The new tax code is almost identical to the old one with only a few parameters changed.

I also commented on last minute tax planning moves here: https://www.frugalprofessor.com/year-en ... ing-moves/. The ideas shared are similar to those discussed in this thread.
Thanks. I've bookmarked your site and will return in two months after I file my 2017 return.
I assume you have accurately modeled the increased standard deduction for Old People, whether filing Single or MFJ...
Attempted new signature...

Bacchus01
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Re: Tax Bill Omnibus Thread

Post by Bacchus01 » Wed Dec 20, 2017 4:44 pm

Watty wrote:
Wed Dec 20, 2017 4:35 pm
There is one twist to keep in mind that I have not seen mentioned.

Some states require you to either use the standard deduction or itemized your deductions on your state tax return the same way that you did on your federal tax return.

I don't remember the details off the top of my head but in my state itemized deduction on the state tax return are based on your federal itemized deduction with some adjustments. I don't know if that would be impacted by the SALT limitations on the federal form if the state does not change their calculations.
The whole impact on states is yet to be seen. Reconciling the $10K max, for example. I pay $14K in property taxes alone, so not sure how the state will manage that. They may cap, or take the whole thing. WI is my state.

cherijoh
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Re: Tax Bill Omnibus Thread

Post by cherijoh » Wed Dec 20, 2017 4:44 pm

mffl wrote:
Wed Dec 20, 2017 1:53 pm
KlangFool wrote:
Wed Dec 20, 2017 1:50 pm
Folks,

As per my understanding, I should donate to the charity now for whatever amount that I budgeted for next year. This is true if my total itemized deduction for 2018 will not exceed the new standard deduction limit.

Please confirm.

KlangFool
Yep, that's my understanding. I'm currently considering contributing perhaps even several years' worth of charitable contributions in 2017 using a Donor Advised Fund, and then distributing the money to the charities whenever I see fit, and taking those capital gains off the table too. The impact of the tax bracket reduction going into 2018, plus taking the standard deduction for a few years, plus the cap gains benefit is pretty hard to ignore.
You will be hard pressed to set up a DAF and get it funded for 2017 at this point. It might work if you already have funds in the same place as you are setting up your DAF. Or have you already set up the account? That wasn't clear to me from your post.

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Wade Garrett
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Re: Tax Bill Omnibus Thread

Post by Wade Garrett » Wed Dec 20, 2017 4:48 pm

My primary bond holding is BMBIX (Baird Quality Intermediate Muni Fund). I've read that it holds a lot of pre-refunded bonds.

There's a provision in the new tax bill that ends advance refunding bonds. My knowledge in this area is very limited but I'm assuming advance refunding bonds and pre-refunded bonds are one and the same? Do I have that right?

If so, how will the new tax bill impact safe/high quality muni funds like BMBIX and others?

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Re: Tax Bill Omnibus Thread

Post by Chip » Wed Dec 20, 2017 4:49 pm

I've run the numbers and I'll pay about $250/year less under the new bill. Pretty much chickenfeed.

But it will simplify things for me quite a bit. I've been bunching deductions for many years but will not in the future. Unless I significantly ramp up charitable giving. So all of those recordkeeping requirements will disappear, along with the slight additional complexity on the tax return. But the loss of itemized deductions mean it will reduce the amount I am able to convert to Roths while staying in a bracket.

In addition, with the repeal of the option to recharacterize Roth conversions, I will no longer have to keep up with horse race, leapfrog and other strategies (as noted earlier by FIREChief). Along with the multiple accounts those strategies required. I suppose in the future I will use a strategy outlined earlier: convert a significant percentage of the desired final amount in January, then a "true-up" conversion in December to try to hit the number.

It will also help me as a volunteer tax preparer. We don't see many people with itemized deductions now. With the new law I expect it will drop to nearly zero. That means we should be able to prepare more returns than before. Theoretically. :)

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Earl Lemongrab
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Re: Tax Bill Omnibus Thread

Post by Earl Lemongrab » Wed Dec 20, 2017 4:49 pm

KlangFool wrote:
Wed Dec 20, 2017 2:07 pm
mffl wrote:
Wed Dec 20, 2017 1:53 pm
Yep, that's my understanding. I'm currently considering contributing perhaps even several years' worth of charitable contributions in 2017 using a Donor Advised Fund, and then distributing the money to the charities whenever I see fit, and taking those capital gains off the table too. The impact of the tax bracket reduction going into 2018, plus taking the standard deduction for a few years, plus the cap gains benefit is pretty hard to ignore.
This is a good idea. I do not donate enough to go this route.
How much are you donating? The Fidelity DAF has as low as $5000 starting donation. If you're able to lump several years at once, that cold work out. It's obviously getting tight on getting it done at least if you have to transfer appreciated securities to Fidelity.
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Earl Lemongrab
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Re: Tax Bill Omnibus Thread

Post by Earl Lemongrab » Wed Dec 20, 2017 4:51 pm

cherijoh wrote:
Wed Dec 20, 2017 4:44 pm
You will be hard pressed to set up a DAF and get it funded for 2017 at this point. It might work if you already have funds in the same place as you are setting up your DAF. Or have you already set up the account? That wasn't clear to me from your post.
At Fidelity, it takes about five minutes to set it up. If you're using assets held there already, or cash, then no problem. I'm in the process of transferring some ETFs, we'll see how it goes.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

NewtonsApple
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Re: Tax Bill Omnibus Thread

Post by NewtonsApple » Wed Dec 20, 2017 4:51 pm

I have seen that there is a prohibition on prepaying 2018 income taxes.

Kitces:
In addition, to prevent households from attempting to maximize their state and local tax deductions in 2017 (before the cap takes effect in 2018), the new rules explicitly stipulate that any 2018 state income taxes paid by the end of 2017 are not deductible in 2017 (and instead will be treated as having been paid at the end of 2018).

If I have a 2017 state tax liability of $15,000, but my W-2 withholding is $17,000. Is there any change in how that extra $2000 treated?

a) Deduct $17,000 in 2017, get a refund of $2000 in 2018 with 1099-g and this amount is taxed at the somewhat lower income rates.

There is a box on the state form to apply the refund to my 2018 estimated taxes, but I think you still get a 1099-G in that case.
Last edited by NewtonsApple on Wed Dec 20, 2017 5:10 pm, edited 1 time in total.

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FIREchief
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Re: Tax Bill Omnibus Thread

Post by FIREchief » Wed Dec 20, 2017 4:53 pm

CAsage wrote:
Wed Dec 20, 2017 4:39 pm
For next year.... I am considering doing my Roth conversions, Total Stock or Total International Stock, in a more dollar cost average method, either monthly or quarterly, because we all know a correction is coming... eventually.
A lot of us are likely having similar thoughts. I'll probably just lump sum the entire annual amount in January, but it is tempting to consider spreading it out. I really wish they hadn't killed the recharacterization option.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

dave_k
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Re: Tax Act Omnibus Thread

Post by dave_k » Wed Dec 20, 2017 4:53 pm

betablocker wrote:
Wed Dec 20, 2017 1:20 pm
Prepay your mortgage but the bill explicitly forbids deducting a 2018 SALT payment against 2017
Only the interest portion is tax deductible. Won't any extra/pre payments all be principal, paying down the balance?

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Re: Tax Bill Omnibus Thread

Post by Spirit Rider » Wed Dec 20, 2017 4:57 pm

johne417 wrote:
Wed Dec 20, 2017 4:00 pm
If you send your kids to private K-12 school, can't you totally game the new 529 rules now for increased state deductions if you're in a qualifying state?
Nothing prevents a state from instituting recapture rules on 529 funds used for other than qualified college expenses.

Also, I wouldn't be surprised to see more states decouple from at least some of the more controversial positions. The states didn't vote for and certainly some don't agree with many of the provisions.

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