Doubling of Standard Deduction--Really??

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

Post by JoeRetire » Thu Feb 01, 2018 12:29 pm

an_asker wrote:
Thu Feb 01, 2018 12:25 pm
- 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!
That's a joke, right?

What time are they saving that is more valuable than money?
Very Stable Genius

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

Post by snowman » Thu Feb 01, 2018 12:54 pm

I ran the spreadsheet with our scenario - 2 parents plus 2 kids in college. We - the parents – lose, but assuming $500 dependent credit (not sure how it’s calculated), not by much.

For the kids and their incomes, I assumed new standard deduction of $12K. Since they are not losing exemption (they don't have one as dependents), their tax free income goes from $6.3K to $12K. They come ahead.

So the family is slightly better off, but overall it’s a wash. The big positive is that starting in 2018, we will no longer itemize deductions – first time in about 20 years. It will take less time to file, and most importantly, we don’t have to gather and then preserve all those receipts for years in case of IRS audit.

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

Post by libralibra » Thu Feb 01, 2018 1:12 pm

JoeRetire wrote:
Thu Feb 01, 2018 12:04 pm
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.
But the deduction and exemption changes expire too, so we will just be back to par - almost. The one change that is permanent is the CPI formula used to calculate the tax brackets. The old formula overestimated inflation and was causing brackets to creep upwards. I.e. real inflation was not keeping up with the brackets, so in effect we were getting a tiny tax cut every year. This has been used as the main attack from critics by saying that in 9 years you will pay more than you would have. This was the responsible thing to do, but the messaging around this has been very hard to win.

Another point that I noticed was used very effectively was that while all the brackets dropped 2-3%, only the top bracket is unlimited. I.e. all the other brackets produce a finite savings per person, but the the top bracket's numbers can become huge (e.g. 2.6% off 100m income) which the critics used to clobber the stats. I really wondered if they could have left the top rate alone (maybe just raised the starting point a lot like they did with AMT) and avoided the messaging loss.

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

Post by MarkNYC » Thu Feb 01, 2018 1:19 pm

White Coat Investor wrote:
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 sure there are plenty of people with $100K of mortgage interest alone in the Bay Area!
Anyone who lists a deduction of $100K mortgage interest on Schedule A will surely receive an IRS inquiry. The deduction for mortgage interest is limited to $1.1 million mortgage debt (less going forward). $100K of interest suggests either (1) paying a 9% mortgage interest rate - not likely, or (2) deducting interest paid on mortgage debt far in excess of $1.1M - not allowed.

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

Post by MarkNYC » Thu Feb 01, 2018 1:55 pm

libralibra wrote:
Thu Feb 01, 2018 1:12 pm
Another point that I noticed was used very effectively was that while all the brackets dropped 2-3%, only the top bracket is unlimited. I.e. all the other brackets produce a finite savings per person, but the the top bracket's numbers can become huge (e.g. 2.6% off 100m income) which the critics used to clobber the stats. I really wondered if they could have left the top rate alone (maybe just raised the starting point a lot like they did with AMT) and avoided the messaging loss.
I think that point is largely invalid. The taxpayer making $100M who lives in NY, CA or NJ is likely to lose $10M or more in state and local tax deduction, which at 37% will cost more in tax than the 2.6% rate reduction saves. No reason to feel sorry for the taxpayer, but assuming that type taxpayer comes out way ahead is not correct.

Now if that taxpayer lives in FL or TX, that's a different story, but I would guess more ultra high income taxpayers live in CA and the NY metro area than FL and TX.

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

Post by TOJ » Thu Feb 01, 2018 3:09 pm

JoeRetire wrote:
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.
"Temporary" like Bush tax cuts and PMI deductibility. No congress is going to let individual tax brackets rise. Likely many congresses would let the corporate tax rates return to pre-cut rates. The bill was written very shrewdly.

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Re: Doubling of Standard Deduction--Really??

Post by LadyGeek » Thu Feb 01, 2018 4:00 pm

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