Schedule A Tax Modeling for 2017 >age65

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harmony
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Schedule A Tax Modeling for 2017 >age65

Post by harmony » Mon Aug 14, 2017 11:47 am

Often we give/take advice to do tax planning using the previous year's tax software. I want to model the effects of some much larger than usual 2017 potential deductions on Schedule A. This presents a challenge since there will be a significant change in the 2017 Schedule A calculation compared to 2016. Starting for 2017, the 7.5% calculation will disappear for those over 65. The 10% calculation will apply to everyone. (Let's assume current rules still apply, though this has come up in Congress's ACA discussions.)

Next year's tax software comes out late in the year, but sometimes our state software isn't released until after the new year. This won't provide us information soon enough since tax maneuvering / bunching needs to be completed before the end of the year.

This is how the 2016 Schedule A, Line 3 instructions read:
Multiply line 2 by 10% (0.10). But if either you or your spouse was born before January 2, 1952, multiply line 2 by 7.5% (0.075) instead.
In planning a work-around for our model, I thought I might change our dates of birth in the tax software basic informaton to make it calculate as if we are still under age 65, thus forcing the 10% calculation (2017 rule) on our model. However, doing so would also reduce our standard deduction to the under-age-65 rules. Those over 65 are supposed to get an extra $1250 per person for their standard deductions. That's an additional $2500 for MFJ, which may be easy enough to adjust for after our model is complete.

If I change our dates of birth so as to require the 10% calculation, then I would add $2500 to our standard deduction and compare that to the total of itemized deductions on Schedule A. Are there any problems with this? Any alternative suggestions? Thank you.

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One Ping
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Re: Schedule A Tax Modeling for 2017 >age65

Post by One Ping » Mon Aug 14, 2017 12:01 pm

harmony wrote:
Mon Aug 14, 2017 11:47 am
Often we give/take advice to do tax planning using the previous year's tax software. I want to model the effects of some much larger than usual 2017 potential deductions on Schedule A. This presents a challenge since there will be a significant change in the 2017 Schedule A calculation compared to 2016. Starting for 2017, the 7.5% calculation will disappear for those over 65. The 10% calculation will apply to everyone. (Let's assume current rules still apply, though this has come up in Congress's ACA discussions.)

Next year's tax software comes out late in the year, but sometimes our state software isn't released until after the new year. This won't provide us information soon enough since tax maneuvering / bunching needs to be completed before the end of the year.

This is how the 2016 Schedule A, Line 3 instructions read:
Multiply line 2 by 10% (0.10). But if either you or your spouse was born before January 2, 1952, multiply line 2 by 7.5% (0.075) instead.
In planning a work-around for our model, I thought I might change our dates of birth in the tax software basic informaton to make it calculate as if we are still under age 65, thus forcing the 10% calculation (2017 rule) on our model. However, doing so would also reduce our standard deduction to the under-age-65 rules. Those over 65 are supposed to get an extra $1250 per person for their standard deductions. That's an additional $2500 for MFJ, which may be easy enough to adjust for after our model is complete.

If I change our dates of birth so as to require the 10% calculation, then I would add $2500 to our standard deduction and compare that to the total of itemized deductions on Schedule A. Are there any problems with this? Any alternative suggestions? Thank you.
We do out tax planning by putting the relevant tax form line calculations in a spreadsheet. We can then modify the 'tests' or 'limits' that may be placed on any individual line item to reflect changes, or potential changes, in the law or our situation as we see fit. This also allows us to understand exactly how some income can affect other things, like Medicate MAGI, and adjust our income or deduction creating activities accordingly.
"Re-verify our range to target ... one ping only."

RudyS
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Re: Schedule A Tax Modeling for 2017 >age65

Post by RudyS » Mon Aug 14, 2017 12:43 pm

Increase the projected medical expenses, so that the allowed deduction reflects 10% rather than 7.5%. Should be straightforward.

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FiveK
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Re: Schedule A Tax Modeling for 2017 >age65

Post by FiveK » Mon Aug 14, 2017 1:19 pm

harmony wrote:
Mon Aug 14, 2017 11:47 am
Often we give/take advice to do tax planning using the previous year's tax software. I want to model the effects of some much larger than usual 2017 potential deductions on Schedule A.
...
Any alternative suggestions? Thank you.
The tax calculations in Tools and calculators - Personal_finance_toolbox - Bogleheads use 2017 tables.

If your situation isn't too complex, that will likely calculate well for you.

trueblueky
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Re: Schedule A Tax Modeling for 2017 >age65

Post by trueblueky » Mon Aug 14, 2017 2:03 pm

RudyS wrote:
Mon Aug 14, 2017 12:43 pm
Increase the projected medical expenses, so that the allowed deduction reflects 10% rather than 7.5%. Should be straightforward.
The other way around unfortunately. In 2016, you could include medical expenses in itemizing if they were more than 7.5% of AGI (assuming age 65). In 2017, it's 10%.

jebmke
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Re: Schedule A Tax Modeling for 2017 >age65

Post by jebmke » Mon Aug 14, 2017 2:06 pm

Most tax software allows you to override the calculations or the data coming from another form. It usually means you can't e-file the return but in this case, you don't care. I do all my pro-forma's by jamming data into various forms -- many times in aggregate (e.g. one number for dividends). or do something like add the excess over 10% to your real estate tax number.
When you discover that you are riding a dead horse, the best strategy is to dismount.

Ace1
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Re: Schedule A Tax Modeling for 2017 >age65

Post by Ace1 » Mon Aug 14, 2017 9:42 pm

I don't know about other tax software, but if you use turbo tax, there is a form in the fedforms list called
What-if worksheet.
This is a nice little tool to experiment with various things, including planning for next year.
You can start by copying the 2016 data to any of the what if columns, or you can play with mfj versus mfs.

There is a check box at the top of the "what-if"columns to use the 2017 ( or next year) rates.
It also correctly applies known tax changes like this switch to 10% from 7.5% for medical on schedule A.

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FiveK
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Re: Schedule A Tax Modeling for 2017 >age65

Post by FiveK » Tue Aug 15, 2017 12:00 am

Ace1 wrote:
Mon Aug 14, 2017 9:42 pm
...there is a form in the fedforms list called
What-if worksheet.
Nice - thanks for mentioning!

Note that if the What-If Worksheet is not listed in the list of forms you have to generate it by asking for it. See https://ttlc.intuit.com/questions/44090 ... -worksheet.
Last edited by FiveK on Mon Jun 04, 2018 8:36 am, edited 1 time in total.

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celia
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Re: Schedule A Tax Modeling for 2017 >age65

Post by celia » Tue Aug 15, 2017 12:15 am

harmony wrote:
Mon Aug 14, 2017 11:47 am
In planning a work-around for our model, I thought I might change our dates of birth in the tax software basic informaton to make it calculate as if we are still under age 65, thus forcing the 10% calculation (2017 rule) on our model. However, doing so would also reduce our standard deduction to the under-age-65 rules. Those over 65 are supposed to get an extra $1250 per person for their standard deductions.
You could change your birth dates so you are both younger AND add another $2500 as a non-medical itemized deduction (say an increase in charitable donations).

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harmony
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Re: Schedule A Tax Modeling for 2017 >age65

Post by harmony » Tue Aug 15, 2017 1:05 pm

Thank you for many and varied ideas to explore. The “what-if-worksheet” is especially intriguing. We switched away from Turbo Tax a couple of years ago and have been using TaxAct ever since. So I wondered if TaxAct had anything similar. It didn't take me very long to find it. I clicked on the “Tools” tab and a drop-down menu had a list of six different tools. Near the bottom of the list is “Tax Calculator”, which is pre-populated with values from the current return. Values appear for three tax years: 2016, 2017, and 2018.

Values appear in TaxAct's typical green (modifiable) text and blue (calculated field) text. A note at the top states:
The following report is used for taxpayers to project their earnings and expenses into the following years. NOTE: Values are taken from your current return. If you make any modifications, you may need to adjust other values as well.
Contrasting data for 2016 with 2017, the calculator appears to switch from the 7.5% to the 10% calculation for over age 65. It aggregates Taxes, Interest, and Contributions and figures deductible medical expenses and miscellaneous deductions over 2% AGI.

I vaguely recall opening this tax calculator a couple of years ago (when we were paying estimated taxes) and found it was not up to the tall order of figuring variable quarterly estimated taxes. However, what we see now appears to be very useful for understanding and predicting our future tax scenarios. This tool will help us in future years as we are planning Roth rollovers and we need to predict how the size of our rollover, combined with tax-exempt income, will affect the taxation of our social security benefits.

This is called a “Federal Tax Calculator”. I couldn't find a state tax calculator within TaxAct, but since our state doesn't tax social security benefits, that information, though helpful, isn't quite as significant as the federal scenario calculation.

Whatever process we would use, it would need to be something foolproof that we could easily understand and discuss as tax filing partners. Thank you for everyone's input. All of your ideas, even those we won't be using, have helped us arrive at this solution.

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