Doubling of Standard Deduction--Really??

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boater07
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Doubling of Standard Deduction--Really??

Post by boater07 » Wed Jan 31, 2018 1:17 pm

I'm all for tax simplification but I shudder when I hear that statement.
The elimination of the standard exemptions of $8100 certainly reduces the benefit.
What am I missing??

sport
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Re: Doubling of Standard Deduction--Really??

Post by sport » Wed Jan 31, 2018 1:22 pm

Nothing

rkhusky
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Re: Doubling of Standard Deduction--Really??

Post by rkhusky » Wed Jan 31, 2018 1:42 pm

boater07 wrote:
Wed Jan 31, 2018 1:17 pm
I'm all for tax simplification but I shudder when I hear that statement.
The elimination of the standard exemptions of $8100 certainly reduces the benefit.
What am I missing??
2017 standard deductions and exemptions for married couple are $20,800. The 2018 standard deduction is $24,000. Seems better and simpler for those folks and for those with less than $15,900 in itemized deductions, which is the vast majority of the population.

CantPassAgain
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Re: Doubling of Standard Deduction--Really??

Post by CantPassAgain » Wed Jan 31, 2018 1:49 pm

rkhusky wrote:
Wed Jan 31, 2018 1:42 pm
boater07 wrote:
Wed Jan 31, 2018 1:17 pm
I'm all for tax simplification but I shudder when I hear that statement.
The elimination of the standard exemptions of $8100 certainly reduces the benefit.
What am I missing??
2017 standard deductions and exemptions for married couple are $20,800. The 2018 standard deduction is $24,000. Seems better and simpler for those folks and for those with less than $15,900 in itemized deductions, which is the vast majority of the population.
That, and the fact that the 15% bracket was reduced to 12%, and the 25% bracket reduced to 22%. And the doubling of the child tax credit. Seems like a win for lots of folks to me (unless you have a bunch of kids where the increased child tax credit doesn't make up for the eliminated extra exemptions) Thanks Chuck for the correction
Last edited by CantPassAgain on Wed Jan 31, 2018 2:07 pm, edited 2 times in total.

flyingby
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Re: Doubling of Standard Deduction--Really??

Post by flyingby » Wed Jan 31, 2018 1:49 pm

Not missing anything, but it's not as beneficial as you'd imagine. Married + 1 Kid is $24,150 for 2017 due to the exception allowance. No exception allowance and we're back in the same place with the negative of having to overcome double the standard deduction before itemizing kicks in.

rkhusky
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Re: Doubling of Standard Deduction--Really??

Post by rkhusky » Wed Jan 31, 2018 1:51 pm

CantPassAgain wrote:
Wed Jan 31, 2018 1:49 pm
(unless you have a bunch of kids where the child tax credit doesn't make up for the eliminated extra exemptions)
But then you might get the extra child tax credit or do tax gain harvesting or Roth conversions. Even so, admittedly some may be worse off.

alfaspider
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Re: Doubling of Standard Deduction--Really??

Post by alfaspider » Wed Jan 31, 2018 1:52 pm

boater07 wrote:
Wed Jan 31, 2018 1:17 pm
I'm all for tax simplification but I shudder when I hear that statement.
The elimination of the standard exemptions of $8100 certainly reduces the benefit.
What am I missing??
You aren't missing anything, but it's worth noting that inflation indexing has changed (now chained CPI, which will cause reduced inflation adjustments and more bracket creep), and that the individual cuts will expire unless they are renewed. In 2018, the vast majority will see a benefit, but that benefit will steadily erode over the next decade unless a future congress changes things.

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dodecahedron
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Re: Doubling of Standard Deduction--Really??

Post by dodecahedron » Wed Jan 31, 2018 1:55 pm

rkhusky wrote:
Wed Jan 31, 2018 1:42 pm
boater07 wrote:
Wed Jan 31, 2018 1:17 pm
I'm all for tax simplification but I shudder when I hear that statement.
The elimination of the standard exemptions of $8100 certainly reduces the benefit.
What am I missing??
2017 standard deductions and exemptions for married couple are $20,800. The 2018 standard deduction is $24,000. Seems better and simpler for those folks and for those with less than $15,900 in itemized deductions, which is the vast majority of the population.
It does simplify the decisionmaking and tax prep enormously. In particular, many taxpayers we see at our VITA site (limited to household with incomes below $54K who generally have few deductions) who currently stress out about whether they have brought in every possible receipt for copays, small charitable donations, etc. can be told to relax. And starting in 2019, almost nobody we see will have to worry about whether their state tax refund might be partially deductible.

Very few of our taxpayers reach the current standard deduction threshholds and except for an exceptional few with sky high medical expenses due to a family member in a nursing home, I don't believe any of our taxpayers has ever reached anywhere near the new standard deduction numbers, so we won't be spending much time on Schedule A's next year.

CantPassAgain
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Re: Doubling of Standard Deduction--Really??

Post by CantPassAgain » Wed Jan 31, 2018 2:00 pm

flyingby wrote:
Wed Jan 31, 2018 1:49 pm
Not missing anything, but it's not as beneficial as you'd imagine. Married + 1 Kid is $24,150 for 2017 due to the exception allowance. No exception allowance and we're back in the same place with the negative of having to overcome double the standard deduction before itemizing kicks in.
2017 MFJ with one child:
Standard Deduction $12,700
Personal Exemption $4,050 x 3 = $12,150
Total: $24,850

Brackets:
10% up to $18,650
15% $18,651 to $75,900
25% $75,901 to $153,100
28% $153,101 to $233,350

Child tax credit $1,000 for each child (max before phaseout)

2018 MFJ with one child:
Standard Deduction $24,000
Personal Exemption - None

Brackets:
10% up to $19,050
12% $19,051 to $77,400
22% $77,401 to $165,000
24% $165,001 to $315,000

Child tax credit $2,000 for each child (max before phaseout)

For most people this is a win

Chuck
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Re: Doubling of Standard Deduction--Really??

Post by Chuck » Wed Jan 31, 2018 2:01 pm

CantPassAgain wrote:
Wed Jan 31, 2018 1:49 pm
(unless you have a bunch of kids where the increased child tax credit doesn't make up for the eliminated extra exemptions)
I can't see how that would happen.

The exemption was about $4000, and the child tax credit was $1000. So you would break even in the 25% tax bracket. (You'd get a $1000 reduction due to the exemption, and you would get the $1000 credit, which matches the $2000 child tax credit in 2018.)

The only way to lose under the new law would be in tax brackets higher than 25%. In those cases, you were already in a phaseout zone where the child tax credit goes away. (That is, you were getting something less than $2000 per child in 2017, and you will get the full $2000 per child in 2018.)

The only losers will be those with "dependents" who are not "children" (under 17) because they will lose the exemption, and there is no compensating credit.

CantPassAgain
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Re: Doubling of Standard Deduction--Really??

Post by CantPassAgain » Wed Jan 31, 2018 2:06 pm

Chuck wrote:
Wed Jan 31, 2018 2:01 pm
CantPassAgain wrote:
Wed Jan 31, 2018 1:49 pm
(unless you have a bunch of kids where the increased child tax credit doesn't make up for the eliminated extra exemptions)
I can't see how that would happen.

The exemption was about $4000, and the child tax credit was $1000. So you would break even in the 25% tax bracket. (You'd get a $1000 reduction due to the exemption, and you would get the $1000 credit, which matches the $2000 child tax credit in 2018.)

The only way to lose under the new law would be in tax brackets higher than 25%. In those cases, you were already in a phaseout zone where the child tax credit goes away. (That is, you were getting something less than $2000 per child in 2017, and you will get the full $2000 per child in 2018.)

The only losers will be those with "dependents" who are not "children" (under 17) because they will lose the exemption, and there is no compensating credit.
You are right, I forgot to take into account the after tax effect of the elimination of the exemption. Thanks for the correction.

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dodecahedron
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Re: Doubling of Standard Deduction--Really??

Post by dodecahedron » Wed Jan 31, 2018 2:21 pm

Chuck wrote:
Wed Jan 31, 2018 2:01 pm
The only losers will be those with "dependents" who are not "children" (under 17) because they will lose the exemption, and there is no compensating credit.
There is a $500 credit for dependents who are not children under 17. That credit will compensate our low-income taxpayers who will be in the 10% or 12% brackets next year for the loss of their current dependent exemption.

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Re: Doubling of Standard Deduction--Really??

Post by e5116 » Wed Jan 31, 2018 2:32 pm

dodecahedron wrote:
Wed Jan 31, 2018 2:21 pm
Chuck wrote:
Wed Jan 31, 2018 2:01 pm
The only losers will be those with "dependents" who are not "children" (under 17) because they will lose the exemption, and there is no compensating credit.
There is a $500 credit for dependents who are not children under 17. That credit will compensate our low-income taxpayers who will be in the 10% or 12% brackets next year for the loss of their current dependent exemption.
Yep, but those non low-income individuals who now claim dependents who are students in college for example will lose that exemption. So, for the vast majority of bogleheads, no tax incentive to having children aged 17-22 like there is today. :) The other thing that isn't mentioned above is the fact that with the cap of $10k on SALT deductions, it's obviously much harder to be above the standard deduction. So, for those in high tax states with high incomes, their marginal rate might go down but be applied to a much larger "base." E.g. State income taxes of 6% for a couple with $200k total income = $12000. Prop tax of another $12k. Let's say mortgage interest of $16k. Used to be able to deduct $40k. Starting in 2018, can only deduct $10k, so $30k MORE of your income is subject to tax (this couple still wouldn't use std deduction since they'd hit $26k itemized with new method with just the three things above). So, you can't look at the tax bracket percentages and dollar amounts as an apples-to-apples comparison. Lots of different nuances and scenarios.

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Re: Doubling of Standard Deduction--Really??

Post by 3CT_Paddler » Wed Jan 31, 2018 2:44 pm

flyingby wrote:
Wed Jan 31, 2018 1:49 pm
Not missing anything, but it's not as beneficial as you'd imagine. Married + 1 Kid is $24,150 for 2017 due to the exception allowance. No exception allowance and we're back in the same place with the negative of having to overcome double the standard deduction before itemizing kicks in.
How is it a negative if the standard deduction is so high that it does not kick in for you? At worst you are in no worse of a position as before (and brackets also went down overall).

Itemizing will still be relatively common for middle income families ($70-120k) that pay relatively high taxes, own a home and give to charity.

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Re: Doubling of Standard Deduction--Really??

Post by dad2000 » Wed Jan 31, 2018 2:47 pm

Chuck wrote:
Wed Jan 31, 2018 2:01 pm
CantPassAgain wrote:
Wed Jan 31, 2018 1:49 pm
(unless you have a bunch of kids where the increased child tax credit doesn't make up for the eliminated extra exemptions)
The only losers will be those with "dependents" who are not "children" (under 17) because they will lose the exemption, and there is no compensating credit.
Or people like me with well over $60k in itemized deductions. And I don't live in CA, NY, NJ, or CT. In response, I'm getting creative with restructuring my finances to take advantage of the new passthrough rules. Also keeping an eye on the state proposed workarounds for local taxes such as conversion to charitable contributions or payroll taxes.

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Re: Doubling of Standard Deduction--Really??

Post by riverguy » Wed Jan 31, 2018 3:20 pm

dad2000 wrote:
Wed Jan 31, 2018 2:47 pm
Chuck wrote:
Wed Jan 31, 2018 2:01 pm
CantPassAgain wrote:
Wed Jan 31, 2018 1:49 pm
(unless you have a bunch of kids where the increased child tax credit doesn't make up for the eliminated extra exemptions)
The only losers will be those with "dependents" who are not "children" (under 17) because they will lose the exemption, and there is no compensating credit.
Or people like me with well over $60k in itemized deductions. And I don't live in CA, NY, NJ, or CT. In response, I'm getting creative with restructuring my finances to take advantage of the new passthrough rules. Also keeping an eye on the state proposed workarounds for local taxes such as conversion to charitable contributions or payroll taxes.
With 60k in itemized deductions, I'm sure you'll be fine.

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Re: Doubling of Standard Deduction--Really??

Post by Epsilon Delta » Wed Jan 31, 2018 3:24 pm

riverguy wrote:
Wed Jan 31, 2018 3:20 pm

With 60k in itemized deductions, I'm sure you'll be fine.
You don't have to be over 60K in deductions to be hurt. For a single with over 12k in itemized deductions the loss of the personal exemption is a dead loss.

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Re: Doubling of Standard Deduction--Really??

Post by DavidW » Wed Jan 31, 2018 3:29 pm

riverguy wrote:
Wed Jan 31, 2018 3:20 pm
dad2000 wrote:
Wed Jan 31, 2018 2:47 pm
Chuck wrote:
Wed Jan 31, 2018 2:01 pm
CantPassAgain wrote:
Wed Jan 31, 2018 1:49 pm
(unless you have a bunch of kids where the increased child tax credit doesn't make up for the eliminated extra exemptions)
The only losers will be those with "dependents" who are not "children" (under 17) because they will lose the exemption, and there is no compensating credit.
Or people like me with well over $60k in itemized deductions. And I don't live in CA, NY, NJ, or CT. In response, I'm getting creative with restructuring my finances to take advantage of the new passthrough rules. Also keeping an eye on the state proposed workarounds for local taxes such as conversion to charitable contributions or payroll taxes.
With 60k in itemized deductions, I'm sure you'll be fine.
In my situation, I shifted a lot of donations to every other year. So, all my 2018 donations were made in 2017. I will skip a year to maximize the tax benefit... However, I realize that isn't possible for some items and cash flow reasons...

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Re: Doubling of Standard Deduction--Really??

Post by niceguy7376 » Wed Jan 31, 2018 3:36 pm

dad2000 wrote:
Wed Jan 31, 2018 2:47 pm
Or people like me with well over $60k in itemized deductions.
Could you share a rough list of the itemized deductions for that 60K. This is more of an academic interest.

riverguy
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Re: Doubling of Standard Deduction--Really??

Post by riverguy » Wed Jan 31, 2018 3:43 pm

Epsilon Delta wrote:
Wed Jan 31, 2018 3:24 pm
riverguy wrote:
Wed Jan 31, 2018 3:20 pm

With 60k in itemized deductions, I'm sure you'll be fine.
You don't have to be over 60K in deductions to be hurt. For a single with over 12k in itemized deductions the loss of the personal exemption is a dead loss.
Not that big of a deal. A person itemizing that much surely can absorb that. Personal exemption was worth about $1k.

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Re: Doubling of Standard Deduction--Really??

Post by triceratop » Wed Jan 31, 2018 3:44 pm

boater07 wrote:
Wed Jan 31, 2018 1:17 pm
I'm all for tax simplification but I shudder when I hear that statement.
The elimination of the standard exemptions of $8100 certainly reduces the benefit.
What am I missing??
Nothing.

Headlines I don't expect to see (except on The Onion): "Congressional leaders brag about eliminating all exemptions from personal income taxes"
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: Doubling of Standard Deduction--Really??

Post by bhsince87 » Wed Jan 31, 2018 4:02 pm

If you are "all for tax simplification", why does it make you shudder? Boosting the standard deduction is probably the biggest bang for the buck in simplifying taxes short of going to a flat tax.

And it doesn't just simplify things for the filers, but for the IRS as well. I've read several times that the number one audit trigger these days is questionable deductions. Investigating those claims has to be a big drain on IRS resources.

Some folks will probably pay more now, some less. But for a large percentage of people, taxes will be much simpler. I know it will be for my wife and I. We'll have much less info to keep track of.
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Re: Doubling of Standard Deduction--Really??

Post by Nowizard » Wed Jan 31, 2018 4:08 pm

Though tax brackets changed, unless I am mistaken, Medicare B and D charges were not adjusted and use the same brackets for those who have income resulting in adjusted payments. No cut there, and a focus on Medicaid and Medicare costs can be expected to be a focus in 2018.

Tim

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Re: Doubling of Standard Deduction--Really??

Post by The Wizard » Wed Jan 31, 2018 4:18 pm

Nowizard wrote:
Wed Jan 31, 2018 4:08 pm
Though tax brackets changed, unless I am mistaken, Medicare B and D charges were not adjusted and use the same brackets for those who have income resulting in adjusted payments. No cut there, and a focus on Medicaid and Medicare costs can be expected to be a focus in 2018.

Tim
Medicare IRMAA tiers are based on MAGI and have nothing to do with tax brackets, deductions or exemptions...
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Re: Doubling of Standard Deduction--Really??

Post by Pigeye Brewster » Wed Jan 31, 2018 4:47 pm

DavidW wrote:
Wed Jan 31, 2018 3:29 pm

In my situation, I shifted a lot of donations to every other year. So, all my 2018 donations were made in 2017. I will skip a year to maximize the tax benefit... However, I realize that isn't possible for some items and cash flow reasons...
+1.

I went with a DAF last year and prefunded 2018 and 2019 deductions in 2017 (plus I had already made my 2017 deductions). Significant impact on 2017 taxes due and I won't have to keep track of all those tax receipts (typically 20-25) in 2018 and 2019. In 2020, I'll bunch again and the DAF means I'll have just 1 tax receipt. Tax simplification in action. :beer

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Re: Doubling of Standard Deduction--Really??

Post by boglegirl » Wed Jan 31, 2018 4:50 pm

e5116 wrote:
Wed Jan 31, 2018 2:32 pm

Yep, but those non low-income individuals who now claim dependents who are students in college for example will lose that exemption. So, for the vast majority of bogleheads, no tax incentive to having children aged 17-22 like there is today. :) The other thing that isn't mentioned above is the fact that with the cap of $10k on SALT deductions, it's obviously much harder to be above the standard deduction. So, for those in high tax states with high incomes, their marginal rate might go down but be applied to a much larger "base." E.g. State income taxes of 6% for a couple with $200k total income = $12000. Prop tax of another $12k. Let's say mortgage interest of $16k. Used to be able to deduct $40k. Starting in 2018, can only deduct $10k, so $30k MORE of your income is subject to tax (this couple still wouldn't use std deduction since they'd hit $26k itemized with new method with just the three things above). So, you can't look at the tax bracket percentages and dollar amounts as an apples-to-apples comparison. Lots of different nuances and scenarios.
The bolded text is wrong. This hypothetical couple previously had $40k in deductions ($24k SALT, $16k interest). They now have $26k ($10k SALT, $16k interest). They only lost $14k, not the $30k you came up with. My family is in this situation. It's painful, but not as dramatic as you stated.

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Re: Doubling of Standard Deduction--Really??

Post by White Coat Investor » Wed Jan 31, 2018 5:04 pm

boater07 wrote:
Wed Jan 31, 2018 1:17 pm
I'm all for tax simplification but I shudder when I hear that statement.
The elimination of the standard exemptions of $8100 certainly reduces the benefit.
What am I missing??
I didn't get the exemptions. It's a doubling of the standard deduction for me, and I plan to use it this year. There's absolutely nothing inaccurate about the statement. I don't even see anything misleading.

"But he didn't say the exemptions went away."

He also didn't say that the brackets were lowered, the child tax credit was expanded etc.
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Re: Doubling of Standard Deduction--Really??

Post by White Coat Investor » Wed Jan 31, 2018 5:11 pm

niceguy7376 wrote:
Wed Jan 31, 2018 3:36 pm
dad2000 wrote:
Wed Jan 31, 2018 2:47 pm
Or people like me with well over $60k in itemized deductions.
Could you share a rough list of the itemized deductions for that 60K. This is more of an academic interest.
Why is this interesting? I'm expecting nearly $400K for 2017 (2 years of charitable deductions, 2 years of state taxes, a little bit of property taxes, and a little bit of mortgage interest.) I'm sure there are plenty of people with $100K of mortgage interest alone in the Bay Area! Mine would have been more if the final federal tax bill had allowed me to pay 3 years of state income taxes in advance like the state would have let me. I actually paid the property taxes in advance for 2018, but it doesn't look like it'll do me any good.

It's all the same deductions as anyone else, just larger amounts- more charity, more mortgage interest, more state taxes etc. I'm sure there is a pretty significant correlation between income and Schedule A deductions.
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Re: Doubling of Standard Deduction--Really??

Post by DavidW » Wed Jan 31, 2018 5:23 pm

Pigeye Brewster wrote:
Wed Jan 31, 2018 4:47 pm
DavidW wrote:
Wed Jan 31, 2018 3:29 pm

In my situation, I shifted a lot of donations to every other year. So, all my 2018 donations were made in 2017. I will skip a year to maximize the tax benefit... However, I realize that isn't possible for some items and cash flow reasons...
+1.

I went with a DAF last year and prefunded 2018 and 2019 deductions in 2017 (plus I had already made my 2017 deductions). Significant impact on 2017 taxes due and I won't have to keep track of all those tax receipts (typically 20-25) in 2018 and 2019. In 2020, I'll bunch again and the DAF means I'll have just 1 tax receipt. Tax simplification in action. :beer
I looked into DAF as well and it sounds very attractive. However, there are fees they levy against the organizations that will receive the funds. I am a bit frugal on fees so I opted to give directly.... I might reassess in 2019... I do like the convenience of simplification....

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Re: Doubling of Standard Deduction--Really??

Post by jebmke » Wed Jan 31, 2018 5:26 pm

DavidW wrote:
Wed Jan 31, 2018 5:23 pm
I looked into DAF as well and it sounds very attractive. However, there are fees they levy against the organizations that will receive the funds. I am a bit frugal on fees so I opted to give directly.... I might reassess in 2019... I do like the convenience of simplification....
Depends on how you look at it. We use a DAF but we will cover the fees by increasing transfers to the DAF. The receiving organizations will not be affected. The fees are part of the cost of using this vehicle and the cost is born by us.
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Re: Doubling of Standard Deduction--Really??

Post by Peter Foley » Wed Jan 31, 2018 5:29 pm

The doubling of the standard deduction pretty much offsets the elimination of the loss of personal exemptions unless one's standard deductions were quite high.

I have run a few scenarios using 2017 tax law and 2018 tax law and the results are close, with a slight edge to the 2018 law. Scenarios are just that, isolated cases. The cases I used were my own, MFJ, retired, no mortgage but high state and local taxes and charitable contributions. 2018 resulted in a few hundred dollars less in taxes with a greatly simplified tax return. My daughters' tax returns (2 young children each), married, mortgage, high state and local taxes, very modest charitable contributions, resulted in saving of a couple thousand dollars in 2018. The doubling of the child care credit more than made up for the loss of itemized deductions. All three families are in the lower middle part of the 22% tax bracket.

Again, these are isolated scenarios run on families in relative high tax states. In all three cases I will be happy to forego the itemized deduction schedule for the foreseeable future.

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Re: Doubling of Standard Deduction--Really??

Post by dodecahedron » Wed Jan 31, 2018 5:30 pm

e5116 wrote:
Wed Jan 31, 2018 2:32 pm
dodecahedron wrote:
Wed Jan 31, 2018 2:21 pm
Chuck wrote:
Wed Jan 31, 2018 2:01 pm
The only losers will be those with "dependents" who are not "children" (under 17) because they will lose the exemption, and there is no compensating credit.
There is a $500 credit for dependents who are not children under 17. That credit will compensate our low-income taxpayers who will be in the 10% or 12% brackets next year for the loss of their current dependent exemption.
Yep, but those non low-income individuals who now claim dependents who are students in college for example will lose that exemption. So, for the vast majority of bogleheads, no tax incentive to having children aged 17-22 like there is today.
The education credits are still in place, which will help some moderate income families, but I agree there will be some who lose compared to today. Not sure if it is the "vast majority of bogleheads." Low income bogleheads will still get Earned Income Tax Credit for students under 24. High income bogleheads had their dependent exemptions phased out anyway so the $500 non-child dependent credit may be better.

And those older teens and twenty-somethings in the family who have earned income may well see their taxes go down, though I haven't seen anything yet about how standard deductions for taxpayers who are dependents of another child will work, but conceivably a family as a whole might come out ahead even if the parents lose some tax benefits associated with their kids on the parents' tax returns.

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Re: Doubling of Standard Deduction--Really??

Post by Hodor » Wed Jan 31, 2018 5:33 pm

Another wrinkle is that the higher standard deduction coupled with the SALT may end up costing you money on your state tax return. Many states require you to take the state standard deduction if you are doing so for federal taxes. Most states have a standard deduction lower than the current federal one, and I don't know that they are planning on raising them. People who itemize now and switch to the higher federal standard deduction next year may end up reducing their federal taxable by a few thousand at the cost of increasing their state taxable income by a lot. It may be the case for some that they actually save more by itemizing on federal taxes even if it's a little lower than the standard deduction. I don't think most tax software considers the impact on your state taxes, so people need to do this math for themselves next year.

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Re: Doubling of Standard Deduction--Really??

Post by MathWizard » Wed Jan 31, 2018 5:34 pm

boater07 wrote:
Wed Jan 31, 2018 1:17 pm
I'm all for tax simplification but I shudder when I hear that statement.
The elimination of the standard exemptions of $8100 certainly reduces the benefit.
What am I missing??
Bunching 2 years of deductions strategy no longer works for me.

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Re: Doubling of Standard Deduction--Really??

Post by scrabbler1 » Wed Jan 31, 2018 5:44 pm

Most of the time, my itemized deduction is around $8,000 (single, no kids). That's roughly the breakeven point when figuring out if the new, higher SD is better than or worse than eliminating the old personal exemption. I get to $8,000 as the difference between the new SD and the old PE. My income is all investment income, with about half of it ordinary and in the 10% bracket, and half of it LTCG+QD, neither of which is taxed differently under the new law.

So, I will either come out a little bit ahead or a little bit behind, depending on my itemized deductions whose variability depends on medical expenses. But they will be simpler, for sure. Some years, I will be able to file form 1040A.

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Re: Doubling of Standard Deduction--Really??

Post by triceratop » Wed Jan 31, 2018 5:55 pm

White Coat Investor wrote:
Wed Jan 31, 2018 5:04 pm
"But he didn't say the exemptions went away."

He also didn't say that the brackets were lowered, the child tax credit was expanded etc.
who is "He"?
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: Doubling of Standard Deduction--Really??

Post by White Coat Investor » Wed Jan 31, 2018 6:13 pm

triceratop wrote:
Wed Jan 31, 2018 5:55 pm
White Coat Investor wrote:
Wed Jan 31, 2018 5:04 pm
"But he didn't say the exemptions went away."

He also didn't say that the brackets were lowered, the child tax credit was expanded etc.
who is "He"?
Social media is aflame with this quote from the State of the Union address last night, saying it is misleading. I've seen dozens of tweets and facebook posts about it.
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Re: Doubling of Standard Deduction--Really??

Post by jebmke » Wed Jan 31, 2018 6:34 pm

You really have to run 2017 income etc both ways and 2018 income etc both ways. When I looked at it this way it was more or less a wash for us no matter which way I looked at it. The "2017 using 2018 rules" was more of a curiosity since it isn't really relevant for anything. The 2018 scenarios is really what you have to look at. I looked at 2018 and 2023 (when we take RMDs and start SS).
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Re: Doubling of Standard Deduction--Really??

Post by Agggm » Wed Jan 31, 2018 7:34 pm

sport wrote:
Wed Jan 31, 2018 1:22 pm
Nothing
😂

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Re: Doubling of Standard Deduction--Really??

Post by Agggm » Wed Jan 31, 2018 7:36 pm

triceratop wrote:
Wed Jan 31, 2018 5:55 pm
White Coat Investor wrote:
Wed Jan 31, 2018 5:04 pm
"But he didn't say the exemptions went away."

He also didn't say that the brackets were lowered, the child tax credit was expanded etc.
who is "He"?
Trump?

BrooklynInvest
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Re: Doubling of Standard Deduction--Really??

Post by BrooklynInvest » Wed Jan 31, 2018 7:55 pm

I paid 2018 property taxes early in the hope they're deductible at some point but no definitive word on that yet. My SALT quite a bit higher than the new standard deduction regardless.

The lower mortgage interest deduction doesn't impact me directly since I've paid down below the new threshold but will certainly make the crib more expensive for whoever buys it from us. Or cheaper depending on whether there's a knock-on.

Currently we have to claim standard for state if we claim for fed but not an issue for us. Will be for some.

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Re: Doubling of Standard Deduction--Really??

Post by mister_sparkle » Wed Jan 31, 2018 10:01 pm

As a Single filer person, my exemptions go from:

2017 - $10,400 ($4050 personal exemption + $6350 standard deduction)

to

2018 - $12,000 standard deduction


About a 15% increase. Hardly double, but it will reduce my overall Federal tax burden by about $1500 a year, coupled with the lowered tax rates.

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Re: Doubling of Standard Deduction--Really??

Post by JBTX » Wed Jan 31, 2018 10:18 pm

dodecahedron wrote:
Wed Jan 31, 2018 1:55 pm
rkhusky wrote:
Wed Jan 31, 2018 1:42 pm
boater07 wrote:
Wed Jan 31, 2018 1:17 pm
I'm all for tax simplification but I shudder when I hear that statement.
The elimination of the standard exemptions of $8100 certainly reduces the benefit.
What am I missing??
2017 standard deductions and exemptions for married couple are $20,800. The 2018 standard deduction is $24,000. Seems better and simpler for those folks and for those with less than $15,900 in itemized deductions, which is the vast majority of the population.
It does simplify the decisionmaking and tax prep enormously. In particular, many taxpayers we see at our VITA site (limited to household with incomes below $54K who generally have few deductions) who currently stress out about whether they have brought in every possible receipt for copays, small charitable donations, etc. can be told to relax. And starting in 2019, almost nobody we see will have to worry about whether their state tax refund might be partially deductible.

Very few of our taxpayers reach the current standard deduction threshholds and except for an exceptional few with sky high medical expenses due to a family member in a nursing home, I don't believe any of our taxpayers has ever reached anywhere near the new standard deduction numbers, so we won't be spending much time on Schedule A's next year.
This tax year, 2017, we likely have enough deductions we could have even itemized under new tax law in 2017. But not likely to exceed it ( hopefully ) in 2018.

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Re: Doubling of Standard Deduction--Really??

Post by libralibra » Wed Jan 31, 2018 10:31 pm

OP, I think if you're whining about the messaging, then just get over it and be happy with any money you're saving. Never have so many people complained about receiving hundreds or even thousands of dollars free than during the last month (incl here on BH). :confused :oops:

Supposedly, the number of people who itemize will drop by 2/3. And the number of people who pay AMT will drop by a whopping 95%. This affects millions of people and definitely simplifies filing. (And brings tremendous savings to the IRS too, which has to process all these returns.)

FWIW, I did think that "Doubling the Standard Deduction" wasn't the best message/sound bite from the beginning. I don't think the typical taxpayer knows what that means, and it gives others who itemize a chance to gripe. Whereas, it turns out that the typical family of 4 earning 75k sees their fed taxes chopped by more than 1/2. That's the sweet spot of who the tax cuts were supposed to help. Tell any one of them that they are saving 1/2 on their IRS bill and they will instantly get it.

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Re: Doubling of Standard Deduction--Really??

Post by Pigeye Brewster » Wed Jan 31, 2018 10:44 pm

DavidW wrote:
Wed Jan 31, 2018 5:23 pm
Pigeye Brewster wrote:
Wed Jan 31, 2018 4:47 pm
DavidW wrote:
Wed Jan 31, 2018 3:29 pm

In my situation, I shifted a lot of donations to every other year. So, all my 2018 donations were made in 2017. I will skip a year to maximize the tax benefit... However, I realize that isn't possible for some items and cash flow reasons...
+1.

I went with a DAF last year and prefunded 2018 and 2019 deductions in 2017 (plus I had already made my 2017 deductions). Significant impact on 2017 taxes due and I won't have to keep track of all those tax receipts (typically 20-25) in 2018 and 2019. In 2020, I'll bunch again and the DAF means I'll have just 1 tax receipt. Tax simplification in action. :beer
I looked into DAF as well and it sounds very attractive. However, there are fees they levy against the organizations that will receive the funds. I am a bit frugal on fees so I opted to give directly.... I might reassess in 2019... I do like the convenience of simplification....
Very similar to me. Because of the fees, it took me a couple of years to decide to go with the DAF. The main reason I did was to facilitate donating appreciated Vanguard mutual fund shares. They can be donated directly but it is a rather involved process and the amount of the donation has to meet the fund minimum. That limited my use of appreciated shares.

The DAF is much simpler, including for the receiving charities who just get a check, and I'm able to fund all our donations with appreciated shares. I went with the DAF prior to the tax law change and funded just 1 year of donations at that time. Then I did another year's worth after it was passed and signed.

Even my frugal nature is now convinced. :beer

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Re: Doubling of Standard Deduction--Really??

Post by Nowizard » Wed Jan 31, 2018 10:48 pm

Wizard: Of course Medicare costs have to do with tax brackets. If MAGI is reduced by the new tax bill based on increased standard deduction, etc., then both taxable income and effective tax rate are reduced, but Medicare brackets remain the same without a comparable change.

Tim

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dodecahedron
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Re: Doubling of Standard Deduction--Really??

Post by dodecahedron » Wed Jan 31, 2018 11:00 pm

Nowizard wrote:
Wed Jan 31, 2018 10:48 pm
Wizard: Of course Medicare costs have to do with tax brackets. If MAGI is reduced by the new tax bill based on increased standard deduction, etc., then both taxable income and effective tax rate are reduced, but Medicare brackets remain the same without a comparable change.

Tim
Standard deduction has nothing to do with MAGI. Increased standard deduction does not reduce MAGI. MAGI is determined entirely by page 1 items on Form 1040.

Standard deduction appears downstream on page 2 of Form 1040. It affects taxable income but not AGI nor MAGI.

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Re: Doubling of Standard Deduction--Really??

Post by e5116 » Thu Feb 01, 2018 11:58 am

boglegirl wrote:
Wed Jan 31, 2018 4:50 pm
e5116 wrote:
Wed Jan 31, 2018 2:32 pm

Yep, but those non low-income individuals who now claim dependents who are students in college for example will lose that exemption. So, for the vast majority of bogleheads, no tax incentive to having children aged 17-22 like there is today. :) The other thing that isn't mentioned above is the fact that with the cap of $10k on SALT deductions, it's obviously much harder to be above the standard deduction. So, for those in high tax states with high incomes, their marginal rate might go down but be applied to a much larger "base." E.g. State income taxes of 6% for a couple with $200k total income = $12000. Prop tax of another $12k. Let's say mortgage interest of $16k. Used to be able to deduct $40k. Starting in 2018, can only deduct $10k, so $30k MORE of your income is subject to tax (this couple still wouldn't use std deduction since they'd hit $26k itemized with new method with just the three things above). So, you can't look at the tax bracket percentages and dollar amounts as an apples-to-apples comparison. Lots of different nuances and scenarios.
The bolded text is wrong. This hypothetical couple previously had $40k in deductions ($24k SALT, $16k interest). They now have $26k ($10k SALT, $16k interest). They only lost $14k, not the $30k you came up with. My family is in this situation. It's painful, but not as dramatic as you stated.
My apologies, thanks for the correction. I had added in the mortgage deduction after the fact and then just updated the number without thinking.

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Re: Doubling of Standard Deduction--Really??

Post by JoeRetire » Thu Feb 01, 2018 12:04 pm

CantPassAgain wrote:
Wed Jan 31, 2018 2:00 pm
2017 MFJ with one child:
Standard Deduction $12,700
Personal Exemption $4,050 x 3 = $12,150
Total: $24,850

Brackets:
10% up to $18,650
15% $18,651 to $75,900
25% $75,901 to $153,100
28% $153,101 to $233,350

Child tax credit $1,000 for each child (max before phaseout)

2018 MFJ with one child:
Standard Deduction $24,000
Personal Exemption - None

Brackets:
10% up to $19,050
12% $19,051 to $77,400
22% $77,401 to $165,000
24% $165,001 to $315,000

Child tax credit $2,000 for each child (max before phaseout)

For most people this is a win
Remember the bracket changes are temporary. If your win is dependent on the new tax brackets, you'll start to give it back in a few years. At that point in time for most people it will become a loss.
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Re: Doubling of Standard Deduction--Really??

Post by an_asker » Thu Feb 01, 2018 12:25 pm

libralibra wrote:
Wed Jan 31, 2018 10:31 pm
OP, I think if you're whining about the messaging, then just get over it and be happy with any money you're saving. Never have so many people complained about receiving hundreds or even thousands of dollars free than during the last month (incl here on BH). :confused :oops:

Supposedly, the number of people who itemize will drop by 2/3. And the number of people who pay AMT will drop by a whopping 95%. This affects millions of people and definitely simplifies filing. (And brings tremendous savings to the IRS too, which has to process all these returns.)

FWIW, I did think that "Doubling the Standard Deduction" wasn't the best message/sound bite from the beginning. I don't think the typical taxpayer knows what that means, and it gives others who itemize a chance to gripe. Whereas, it turns out that the typical family of 4 earning 75k sees their fed taxes chopped by more than 1/2. That's the sweet spot of who the tax cuts were supposed to help. Tell any one of them that they are saving 1/2 on their IRS bill and they will instantly get it.
+1! It's weird how everyone is whining about the tax laws, even when they don't understand them well.

Will the lower income folks pay less taxes? Most likely yes.
Will the super rich folks pay less taxes? Most likely yes.
Will taxes be easier to file for a majority of folks? Most likely yes.
Will a few folks across the spectrum pay more taxes? Most likely yes.

Who is whining?

- lower income folks. Why? Because the rich got a greater reduction in taxes. Are they right? Yes they are. But shouldn't they be looking at what they are saving rather than what someone else is saving?

- super rich folks. Why? Because they cannot deduct everything they are deducting today (ok, through 2017, to be precise). Are they right? Yes they are. But shouldn't they be looking at the overall picture - all said and done, they are probably paying less in taxes.

- folks who are paying more taxes. Why? Because! And they couldn't care less that they are saving time which is more valuable than money! Are they right? Yes they are. But again, they are saving time and they are probably making enough to survive (I really doubt if low to middle income folks will be paying more in taxes) :oops:

I don't see why not many folks brought it up that the marriage penalty has been eliminated for those households that make less than $600,000 (if you have, please blame my lack of reading comprehension!) . I think this is a big deal in the era where both spouses work.

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