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NEW TAX BRACKETS ARE OUT

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  • #16













    Not sure if I come out ahead or not.  It’s a big deal to me that the AMT is getting repealed, but I’m looking at ~$75,000 in the 35% bracket, which is an extra $1500 in the end.  I paid more in AMT last year.  There are a ton of more factors to consider, but I like the move toward simplicity at least.  Once I get the house paid off I’m going to appreciate the huge standard deduction.
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    I know a lot of people will be happy to see AMT go away.

    And good point about simplicity.

    A big standard deduction will definitely help encourage me to payoff the house.  And of course lobby my state legislature to cut our horrendous state taxes.   ????  Or just move to Texas of Florida.   ????
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    How does it simplify anything? The AMT/SALT I agree is mostly a wash. However, the new pass through stuff is apparently riddled with rules.
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    It makes my personal tax situation simpler.

    Like lithium said, fewer brackets.

    But mostly, with the big standard deduction, and limiting itemized deductions, it discourages me from itemizing, which is the most complicated part of my return.

    There’s nothing simple about taxes.  Nothing simple about subchapter K.  Nothing simple about corporate tax.   ????
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    I think it will be much simpler for most people. Lots seem to erroneously be talking up a loss for 'middle class' and ignoring that the standardized deduction was doubled, but then again most dont have an inkling of how taxes work.

    Its mostly bad for high earning professionals in HCOLA/states.

    Again, brackets dont complicate any entities returns it is as you mentioned the special rules of itemizing, loopholes, etc...

    Problem overall is tax pushing is tone deaf, everyone is concerned about healthcare costs not taxes. This avg break wont cover most peoples increase in insurance premiums.

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    • #17
      At least 401k's are untouched. That's not saying much when you are looking for tax relief and the best you can say is they left something alone. Mortgage deduction on only $500k but existing mortgages grandfathered in. Not good for HIPs who don't want to live like a resident!

      Trying to sort out the pass-through rules - looks like service businesses got axed. The formulas for calculating all the sub-rules have my head spinning. I think it will take someone super-smart to sort this section out. Any brain surgeons around?
      Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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      • #18
        So refi and cash out now if the cash matters at $500k limit.

        It does simplify for the vast majority with the increased standard deduction.   This does make home ownership a lot less palatable and the 'move up' housing market will ultimately suffer because of this.  Which could affect building industry and a lot of jobs in that sector.

        Could be good for HomeDepot though!

         

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        • #19
          Looks like a phase out in the tax free upon selling as well based on income. Real estate taking a big hit here. Might be good overall on home prices, etc...long term.

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          • #20
            I wonder if this Family Tax credit has income limits tied to it -- probably.

            Property tax deduction limit: $10,000.   That's going to hurt a lot of people...even in rust belt/fl/tx areas with nice homes.

            At first glance, we're probably sideways on this since most income will fall down under $260,000.   The interesting part is whether to max out mortgage at this point or to payoff and take the standard deductions and cluster the charity claims in off years.

            If they kicked out the standard to $44k like originally proposed and get rid of SALT and Mortgage completely; would eliminate almost any incentive to itemize.

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            • #21
              Surprise surprise, a tax bill that handsomely benefits the already massively rich, but that continues to hammer working professionals and other high wage earners. Hopefully the SALT provision ends up being a bridge too far. What a joke.

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              • #22
                I wonder if they will fix the marriage tax penalty for dual income households.

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                • #23




                  Lithium wrote:We also have 7 brackets currently, and they’re proposing cutting it to 4.

                  That requires no extra work, doesnt matter if there are 50 brackets. You enter the info, it spits out a number. What complicates the code are all the loopholes, etc…not the basics.
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                  Exactly this!  I don't understand why any cares how many brackets there are.  Type income number into computer, out pops the result, simple.

                  But, the deductions and credits and different kinds of qualified income that create things like backdoor ROTHs, 1-person corporations with profit sharing employer contributions to 401(k)s, high deductible HSAs that are really IRAs in disguise, and tax-loss harvesting - that's the stupid crap that complicates our tax system and creates unfair disadvantages.  When can we get a congress that will simplify that stuff into oblivion?

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                  • #24







                    Lithium wrote:We also have 7 brackets currently, and they’re proposing cutting it to 4.

                    That requires no extra work, doesnt matter if there are 50 brackets. You enter the info, it spits out a number. What complicates the code are all the loopholes, etc…not the basics.
                    Click to expand…


                    Exactly this!  I don’t understand why any cares how many brackets there are.  Type income number into computer, out pops the result, simple.

                    But, the deductions and credits and different kinds of qualified income that create things like backdoor ROTHs, 1-person corporations with profit sharing employer contributions to 401(k)s, high deductible HSAs that are really IRAs in disguise, and tax-loss harvesting – that’s the stupid crap that complicates our tax system and creates unfair disadvantages.  When can we get a congress that will simplify that stuff into oblivion?
                    Click to expand...


                    It's intimidating for your average taxpayer, let alone lowest common denominator taxpayer, to do that much arithmetic.  Most people don't understand how tax brackets work, let alone nine or ten of them.

                    More brackets feels, to many americans, more unfair.  Why are so many people being treated so differently.

                    And in general, it makes it more convoluted, more nebulous what the tax man is hitting you up for.  If there was one huge flat rate with all your social security tax, unemployment, medicare, federal, state, local, gain, sales, property, excise, value added, medical device, etc., people would see the one huge number and flip their ************************.

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                    • #25




                      I wonder if they will fix the marriage tax penalty for dual income households.
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                      They're not, despite the promise otherwise.

                      35% starts at $200k for individuals, and $260k for married.  It should be $400k.

                      On the other hand, the 12%, 25% and 39.6% brackets are doubled.

                      It's sort of like a slam on the upper-middle class, and a handout for those over $500k.

                      I wrote to my rep and senators to complain, for whatever that's worth.

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                      • #26










                        Lithium wrote:We also have 7 brackets currently, and they’re proposing cutting it to 4.

                        That requires no extra work, doesnt matter if there are 50 brackets. You enter the info, it spits out a number. What complicates the code are all the loopholes, etc…not the basics.
                        Click to expand…


                        Exactly this!  I don’t understand why any cares how many brackets there are.  Type income number into computer, out pops the result, simple.

                        But, the deductions and credits and different kinds of qualified income that create things like backdoor ROTHs, 1-person corporations with profit sharing employer contributions to 401(k)s, high deductible HSAs that are really IRAs in disguise, and tax-loss harvesting – that’s the stupid crap that complicates our tax system and creates unfair disadvantages.  When can we get a congress that will simplify that stuff into oblivion?
                        Click to expand…


                        It’s intimidating for your average taxpayer, let alone lowest common denominator taxpayer, to do that much arithmetic.  Most people don’t understand how tax brackets work, let alone nine or ten of them.

                        More brackets feels, to many americans, more unfair.  Why are so many people being treated so differently.

                        And in general, it makes it more convoluted, more nebulous what the tax man is hitting you up for.  If there was one huge flat rate with all your social security tax, unemployment, medicare, federal, state, local, gain, sales, property, excise, value added, medical device, etc., people would see the one huge number and flip their ************************.
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                        First, come on. Over 90% of all returns are done electronically. Very few do any paper anything, there is no computing anything. Second, even in those forms its a minimum math required effort, you find your income/agi/etc on a line and then it says what the number to be imputed to the next round is. We're making up a friction where it doesnt exist. If they cant do the basic subtraction of a-b on their phone, well I dont think it matters as they likely dont owe taxes anyway.

                        Comment


                        • #27
                          I haven't read this whole thread, but I saw a tweet from Kitces that although there are new tax brackets cap gains thresholds will be based on the old brackets.  Ah, a CPA's dream!  More confusion and more demand for them.

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                          • #28
                            For us we're looking at about a $35,000 tax increase from this!

                            Above the AMT, in MA, we stand to lose about $32,000 in state income tax deduction, about $7500 in prop tax deduction over the 10K cap, and maybe claw back about $4500 in the shifting individual tax brackets (although there also appears to be shenanigans where high earners pay another surtax in the 12% bracket).

                            The pass-through rules look lousy too. Only 30% of income can count towards the 25% rate, the rest at ordinary income and there may even be language to exclude professional groups. BS.

                            Also looks like high earners are phased out of the cap gains exclusion on sale of primary home!

                            This sucks!

                            I'm all for a business tax cut to 20% to stay competitive with the world, but don't these clowns realize that there is great overlap between individual workers, small businesses, and even larger businesses. Why screw the hard working W2 employee who works his butt off, and collected tons of debt putting themselves through school?

                            Can we start over and just go with a flat tax or a consumption tax

                            A more serious question is how many of you have begun to think about re-incorporating your practice or electing to file as S corp or PLLC with these rules which could begin as early as Jan 1? We are an old fashioned professional corporation, to maximize group liability protection, that I think defaults to C-corp, pays all shareholders W2 salaries, zeroes profits, and deducts salaries to basically negate the corporate 35% tax (i think). Not sure if it would be worth it for us to elect to file as an S corp with these rules? I'm not too educated with this stuff though. Way over my head.

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                            • #29


                              A more serious question is how many of you have begun to think about re-incorporating your practice or electing to file as S corp or PLLC with these rules which could begin as early as Jan 1? We are an old fashioned professional corporation, to maximize group liability protection, that I think defaults to C-corp, pays all shareholders W2 salaries, zeroes profits, and deducts salaries to basically negate the corporate 35% tax (i think). Not sure if it would be worth it for us to elect to file as an S corp with these rules? I’m not too educated with this stuff though. Way over my head.
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                              I wouldn’t plan ahead on this one. I don’t think service/professional corps will qualify, but I may be (hope I am) wrong.

                              The big problem with a C-service corp electing S-corp status is the accounts receivable (A/R). Most service corps are cash basis, meaning that you report income only when it is received. In the year you elect s-corp status, you must pay taxes on the net of your your A/R at 12/31 less any payables on your books. For most practices, this is just too much at the top bracket to be worthwhile. Who knows, perhaps there will be some phase-in option if this option does come to pass for service/professional businesses.
                              Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                              • #30
                                Pardon prior post typo in top line. We’re about $35000-$40000 in lost deductions, not in overall increased tax! Whew!

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