If the coming tax disaster comes to pass, would it change your mind?

[ScientistPhysician]

We don't have a bill to read yet, mainly because the current political regime does not like to operate above board through normal order. It does not matter why and I don't care to ruminate on the politics.  However, we are currently facing a policy disaster for physicians, it looks like a real possibility that we are going to lose major tax deductions from state/local taxes, mortgage interest, and most importantly our 401(k)s. I know WCI says don't even waste your time until there is a bill in place, but honestly, how are you not concerned that the Republicans- who were supposed to cut our taxes- are intent on keeping them the same or even effectively raising them?

The bigger question: if these policies come to pass, how would it change your position? And even if they don't become a reality, does the fact that Republicans are proposing them change your perception about their tax philosophy?

[adventure]

ScientistPhysician wrote:

if these policies come to pass, how would it change your position?

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Doesn't change the overall goal. I'll still fill up the least risky, highest return, lowest cost option. If that isn't HSAs and 401ks, it'll be real estate, bonds, other investments. Likely won't be bad enough to bury gold though.

ScientistPhysician wrote:

does the fact that Republicans are proposing them change your perception about their tax philosophy?

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Meh, they are all politicians. I might waste more time thinking about it once something is actually written down. 

[VagabondMD]

ScientistPhysician wrote:

We don’t have a bill to read yet, mainly because the current political regime does not like to operate above board through normal order. It does not matter why and I don’t care to ruminate on the politics.  However, we are currently facing a policy disaster for physicians, it looks like a real possibility that we are going to lose major tax deductions from state/local taxes, mortgage interest, and most importantly our 401(k)s. I know WCI says don’t even waste your time until there is a bill in place, but honestly, how are you not concerned that the Republicans- who were supposed to cut our taxes- are intent on keeping them the same or even effectively raising them?

The bigger question: if these policies come to pass, how would it change your position? And even if they don’t become a reality, does the fact that Republicans are proposing them change your perception about their tax philosophy?

Click to expand...

I think that you have the concerns backwards, at least from my perspective. The loss of the major deduction from state and local taxes is a bigger loss than the deductible 401k, much bigger. 

In the case of the proposed 401k change, there would be the ability to deduct a small amount of the 401k contribution, and the rest would be essentially a Roth, which means that you get your tax break later.

With the loss of a state/local tax deduction, you get no break later. You just lose, period.

All of this is hand-wringing is meaningless without knowing the break points for the tax brackets. While it is a ridiculously exaggerated hypothetical, if the 15% bracket went to $400k, and the 25% bracket went to $800k, most docs would pay less tax even with the loss of the 401k deduction and the state/local tax deduction. While I do not see these brackets as being realistic, without the context of knowing where the brackets are set, it is really hard to figure out who are the winners and who are the losers.

[RosieQ]

Vagabond MD wrote:

ScientistPhysician wrote:

We don’t have a bill to read yet, mainly because the current political regime does not like to operate above board through normal order. It does not matter why and I don’t care to ruminate on the politics.  However, we are currently facing a policy disaster for physicians, it looks like a real possibility that we are going to lose major tax deductions from state/local taxes, mortgage interest, and most importantly our 401(k)s. I know WCI says don’t even waste your time until there is a bill in place, but honestly, how are you not concerned that the Republicans- who were supposed to cut our taxes- are intent on keeping them the same or even effectively raising them?

The bigger question: if these policies come to pass, how would it change your position? And even if they don’t become a reality, does the fact that Republicans are proposing them change your perception about their tax philosophy?

Click to expand…

I think that you have the concerns backwards, at least from my perspective. The loss of the major deduction from state and local taxes is a bigger loss than the deductible 401k, much bigger. 

In the case of the proposed 401k change, there would be the ability to deduct a small amount of the 401k contribution, and the rest would be essentially a Roth, which means that you get your tax break later.

With the loss of a state/local tax deduction, you get no break later. You just lose, period.

All of this is hand-wringing is meaningless without knowing the break points for the tax brackets. While it is a ridiculously exaggerated hypothetical, if the 15% bracket went to $400k, and the 25% bracket went to $800k, most docs would pay less tax even with the loss of the 401k deduction and the state/local tax deduction. While I do not see these brackets as being realistic, without the context of knowing where the brackets are set, it is really hard to figure out who are the winners and who are the losers.

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Or potentially more realistically, if we all form an S corp and pay 25% max tax rate it could be more of a wash. Who knows. 

[Donnie]

Agree with Vagabond. I see long threads on here discussing 401k changes, impact of losing state tax deductions, and other proposed changes to the tax code. Yes, all these things would be bad for me and probably you too, but I don’t even spend a minute thinking about these things. There’s nothing I am going to do about it, so why bother calculating or worrying about potential impacts of the proposed changes until they are actually enacted.

For now I take advantage of every tax break I can get (including cashing out receipts from my HSA as expenses are incurred - flame away!). Once the tax code changes I will worry about how to alter my behavior.

[Hatton]

I agree.  Before letting yourself get upset just wait for some concrete info.  All we have now is contradictory info.  Change like this is what makes tax and retirement planning so difficult.

[ScientistPhysician]

The fatalism here kills me. "Oh there's nothing to be done, just let it happen." You could for instance write to and call your representatives (which I did). You could also change your voting habits. I am shocked and disturbed by which party is proposing these policies, even if they don't come to fruition.

[ITEngineer]

ScientistPhysician wrote:

The fatalism here kills me. “Oh there’s nothing to be done, just let it happen.” You could for instance write to and call your representatives (which I did). You could also change your voting habits. I am shocked and disturbed by which party is proposing these policies, even if they don’t come to fruition.

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I've got to ask. Did you ever read Bernie Sanders tax proposals?

If not, why not? (and why are you reading these proposals now?)

If so, what action did you take in 2016?

Here were some of the things Bernie Proposed.

1. Remove the payroll tax cap. That means 15.2% flat tax on unlimited income (right now it stops at $127k. Highly Regressive)

2. Add 2.2% to all Federal Tax brackets with the creation of new tax brackets (37%, 43%, 48%, & 52%) for household income above $250k.

3. Add a special Millionaire tax (specifics were lacking but I assume something similar to what France has for their Wealth tax)

4. Increase ACA tax from 3.8% to 10% for investments.

5. Stepped up basis loophole would be removed.

6. Like-kind 1031 exchanges would trigger taxes.

7. Implement a Robin Hood Tax on all financial transactions.

8. Eliminate the $14000/year you can gift your children tax free. What did you buy your kids for Christmas? Xbox? Phone? Gotta pay gift tax on it.

[Lithium]

- State and Local Taxes are nice to deduct, but under our current system, I don't get to deduct them anyway thanks to AMT.  Rumors are this new system wants to axe the AMT, which I'd welcome, so if most physicians are like me (itemizing deductions but unable to take advantage of SALT as it is) this wouldn't make a difference.  Anyone know approximately what percentage of docs get hit with the AMT?

- Eliminating the Mortgage Interest deduction is a nonstarter, and the GOP knows it.  This was not in DJT's proposals as a candidate.

- DJT has promised no 401(k) changes.  We'll see what shows up in the bill, but he would look like a clown if he signed anything with 401(k) changes in to law.

This is all noise and hysteria, and like Vagabond said, what really matters is where the brackets fall.  If this is a horrible bill like the recent healthcare reform fiascoes, it will be eviscerated and die an embarrassing death once it comes to light.  In the meantime, my energy can be devoted to better uses.

[Donnie]

I’ll go ahead and post something else that I am sure will be unpopular.  I don’t vote.  One vote never made a difference in any election that would have bearing on taxation policy; therefore, my vote has little-to-no actual value (I don’t get personal value from a sense of civic pride). But voting does have a cost associated with it.  I could write a letter, but like voting, I doubt one letter will matter.

I could spend time organizing some kind of movement and encouraging others to vote and write letters in a way similar to how I would vote.  In that scenario, my vote would have value in the sense that I would need to vote so as not to detract from my message that others should vote.  I don’t have time for that though.   

[Doc Spouse]

These kinds of posts are never about the actual law being proposed, it's just fear mongering and concern trolling towards a political end.  Next week it will be a different flavor of "Can you believe they're doing xxxxxx?"

ScientistPhysician wrote:

does the fact that Republicans are proposing them change your perception about their tax philosophy

ScientistPhysician wrote:

You could also change your voting habits. I am shocked and disturbed by which party is proposing these policies, even if they don’t come to fruition.

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The above lines were the real message.  

[Zaphod]

ScientistPhysician wrote:

The fatalism here kills me. “Oh there’s nothing to be done, just let it happen.” You could for instance write to and call your representatives (which I did). You could also change your voting habits. I am shocked and disturbed by which party is proposing these policies, even if they don’t come to fruition.

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Not fatalism at all. Also, how do you know how people voted, there are quite a few young non repubs on here (cant say liberal as those have gone nutters as well). Dont confuse reality for fatalism. Nothing thats being proposed is new, been proposed for decades some of them. Its nonsense to get worked up over trial balloon. If you go on the legislative site with all the bills, there are zillions. How come you're not concerned about those I ask? Or, excited about all those that are exactly opposite of what you're concerned about (they exist)?

Most of this will never come to pass, no matter who you voted for. Trump in, nothing has yet to be done and people are already getting concerned about tying themselves to a disaster. Any bill can be abolished by a new one. Hilary in, nothing would have happened as congress would have opposed her. Bernie, nothing would have happened because congress (including his own party) would have opposed him.

Writing your rep makes you feel good but doesnt change voting usually.

[StarTrekDoc]

AMT bites --- wait a sec --- AMT is good -- it's the FLAT TAX!    :evil: 

Yes, the state deductions exemption really is a free gift and I love it being in California.   As a purist from the Fed standpoint -- just because the State wants to tax you, you shouldn't get a break at the Fed level.   State doesn't give you a break a City taxes or County level taxes, so why else?  At that standpoint is going to cost me plenty of $$$.

Same thing with Prop 13 in California fixing property taxes at 1% with a cap on increase year-to-year with HCOL -- makes no sense what-so-ever and completely turns school district funding on its head and controls to the State.   -- that's another messed up system.

Point is -- taxes are unavoidable.  KIS with minimal exceptions and work efficiently and effectively from there.  

Heck some economists think we all are overpaid anyways  :roll: