New Tax Reform

[rob62521]

On the surface, it sounded great, but after doing some reading, I'm not sure it will make much of a difference for my husband or I. We never took off mortgage. When we had one, we didn't owe enough and now we don't have one. We don't have children. And as so many of you said, the folks working on this are going to make sure THEY benefit before the average tax payer.

[LivingAlmostLarge]

I just did a dry run calculation of my 2017 taxes and it's ugly. I'll be definitely in the class of people who will be crying come reform tax time. I don't get the child tax credit and never have even during our 1 year of no income. We had too much income for the months DH worked on both half years. And now we're back in the problem of being that sliver of people who are w-2 workers that aren't writing off their income and so paying quite a bit.

Meh it is what it is. I'm happy we have income and more than glad to pay my fair share. Too bad warren buffet would be the first to tell you I'm paying more % wise than he is even if his number is bigger $$$

[Singuy]

I just did a dry run calculation of my 2017 taxes and it's ugly. I'll be definitely in the class of people who will be crying come reform tax time. I don't get the child tax credit and never have even during our 1 year of no income. We had too much income for the months DH worked on both half years. And now we're back in the problem of being that sliver of people who are w-2 workers that aren't writing off their income and so paying quite a bit.

Meh it is what it is. I'm happy we have income and more than glad to pay my fair share. Too bad warren buffet would be the first to tell you I'm paying more % wise than he is even if his number is bigger $$$

If this gets passed, it's going to hurt you and I a lot with personal exemptions going away. This means I can't claim my children as dependent, or anyone else for that matters. I'm hoping that taking away AMT will help...and I'm not sure if that 2.3% medicare tax will stick around or not for people making over 250k/year. The two probably will cancel each other out. What bracket we all belongs to is the most impt part of this tax reform but we have no information on that.

I don't care if our taxes go up by a little, but it's going to suck for those with 2-3 kids, making over 135k/year with a mortgage of 250k+. These people will most likely utilize itemized deduction due to mortgage interest and property tax superseding 24k/year. But personal exemptions disappear AND they can't qualify for child credit. So for a family of 5, that's a deduction of 20,250 they are missing out on...which means a tax bill increase of 5k under Trump plan. There goes that middle class life people are trying to work into.

[Nutria]

I don't care if our taxes go up by a little, but it's going to suck for those with 2-3 kids, making over 135k/year with a mortgage of 250k+. These people will most likely utilize itemized deduction due to mortgage interest and property tax superseding 24k/year. But personal exemptions disappear AND they can't qualify for child credit. So for a family of 5, that's a deduction of 20,250 they are missing out on...which means a tax bill increase of 5k under Trump plan. There goes that middle class life people are trying to work into.

If you can't live a middle class life on $135K/an then you're doing something really wrong (which may include living in the wrong place).

[Singuy]

If you can't live a middle class life on $135K/an then you're doing something really wrong (which may include living in the wrong place).

I think you miss understood what I was saying.

The middle class life is different than the middle class. With new houses average at around 250k each (of course you can find used older houses for much less, pricing for LCOLA), having a mortgage of 250k and a couple of kids will require an income of about 115-135k. Trump's plan tax these people harder than the current tax plan. This is the middle class LIFE people are trying to achieve..not saying this is the "middle class".

Families who make the national median are still in the middle class, but they probably feel like they are in the working class cause you know..inflation is a bit%h.

[LivingAlmostLarge]

I know never say I can't make it. But I do think it's ridiculous to think that the working couple isn't paying % of their income more than the really rich. It's proven fact. Besides who but the absolute richest people need the estate tax to go away? It's only estates worth more than $5 million. I mean how many people will be left that?

[Nutria]

Besides who but the absolute richest people need the estate tax to go away? It's only estates worth more than $5 million. I mean how many people will be left that?

Small business isn't as small as you think.

[Singuy]

Huh, no mention of small business tax cuts in this reform.

The brackets are not terrible, but what's the deal with married couples at the 35% tax bracket? Every bracket doesn't have the usual marriage tax penalty except at 35%, in which the penalty is massive!.

[kork13]

Just to help the discussion move along, and to provide some factual background about what is currently proposed...

The House Ways & Means Committee released the initial draft of its tax reform proposal.
Here's the full text if you're bored, or a more digestible 9-page summary, or a 1-page summary touching only the highlights.

Some of the key take-aways: (borrowed from Investopia)

***KEEP IN MIND, THIS IS ONLY THE INITIAL COMMITTEE PROPOSAL -- CHANGES ARE ALL BUT GUARANTEED TO OCCUR***

Personal Taxes
• Collapse the current seven tax brackets into four, paying marginal rates of 12%, 25%, 35% and 39.6%:
Single:
12%: $0 - $45,000
25%:$45,001 - $200,000
35%:$200,001 - $500,000
39.6%: $500,001+
Head of household
12%: $0 - $67,500
25%: $67,501 - $200,000
35%: $200,001 - $500,000
39.6%: $500,001+
Married filing jointly
12%: $0 - $90,000
25%: $90,001 - $260,000
35%: $260,001 - $1,000,000
39.6%: 1,000,001+
Married filing separately
12%: $0 - $45,000
25%: $45,001 - $130,000
35%: $130,001 - $500,000
39.6%: $500,001+
• Raise the standard deduction to $24,000 for married couples filing jointly (from $12,700 in 2017 under current law), to $12,000 for single filers (from $6,350), and to $18,300 (from $9,350) for heads of houshehold.
• Eliminate the $4,050 personal exemption.
• Scrap a number of tax breaks, including the medical expense deduction, along with tax credits for adoption and student loan interest.
• Preserve the Earned Income Tax Credit, child and dependent care tax credit and charitable giving deduction.
• Retain the mortgage interest deduction for existing homes and cap the deduction for new homes at $500,000 (the current limit is $1 million for married couples filing jointly).
• Retain the state and local tax deduction up to $10,000. The deduction disproportionately benefits high earners and taxpayers in Democratic states, though a number of Republican members of Congress representing high-tax states have opposed attempts to eliminate it, as the Big Six framework proposed.
• Leave 401(k)s and IRAs unchanged.
• Repeal the alternative minimum tax, a device intended to curb tax avoidance among high earners.
• Double the estate tax exemption and repeal the tax entirely after six years, along with the generation-skipping transfer (GST).
• Introduce a "family credit," which includes raising the child tax credit to $1,600 from $1,000 and providing each parent and non-child dependent with a $300 credit.

Business Taxes
• Permanently lower the top corporate tax rate to 20% from its current 35%.
• Reduce the top pass-through rate to 25%, while introducing safeguards to keep high earners from passing off wage income as pass-through income. Owners of pass-through businesses – which include sole proprietorships, partnerships and S-corporations – currently pay taxes on their firms' earnings through the personal tax code, so the top rate is 39.6%.
• Allow businesses to immediately write off the costs of new equipment. Currently businesses must depreciate the value of these assets over time.
• Retain the low-income housing tax credit and the research and development credit.
• Alter the rules governing tax-exempt groups such as religious organizations and charities.
• Alter the treatment of overseas corporate earnings, making it easier to repatriate earnings and discouraging corporate inversions.

[kork13]

I must admit, I actually like most of the proposals in this initial draft (acknowledging that nothing is or can be perfect). The limits/caps on retained deductions/credits appear geared toward splitting a middle ground, to cover most of the lower/middle class, while reigning in the deductions/credits somewhat to reduce the overall cost of the reforms... Alot of folks will bemoan the limits, but while they're not necessarily generous, they aren't terrible either.

I love the idea of simplifying the tax code. The personal tax brackets (overall) look pretty good, though Singuy makes a good point about the 35% bracket -- single/HoH starts at $200k, MFJ starts at $260k. I also like the cap on pass-through business tax rate (25%), which would apply to most smaller businesses. However, I'd like to see the top corporate tax rate go up to 25% to match the small business pass-through rate cap.

I think what irks me the most about this proposal is that they keep touting the "doubling of the standard deduction!" but at the same time eliminating the personal exemption. So it only actually nets a 17% increase (for both single & MFJ) in the amount of non-taxed income. I'm cool with only having the minor increase, just don't advertise it like it's a huge boon for people when it's really a fairly small impact.

Bottom line, though.... I just want the Congress to agree on SOMETHING! I know that the final bill will likely have dramatic changes from its current form. But the goal is to simplify the tax code and reduce the filing burden. Hopefully they can negotiate the bill effectively into some shape that will be enough to get something done while still adhering to that goal.

[Singuy]

Small business passthru is still limited to businesses that deals with sales tax meaning service type businesses are exempt. Also there are provisions that may increase the tax of the individual income from these businesses which means service type businesses may be more screwed than before.

Lots of winners and losers

[kork13]

Small business passthru is still limited to businesses that deals with sales tax meaning service type businesses are exempt. Also there are provisions that may increase the tax of the individual income from these businesses which means service type businesses may be more screwed than before.

Maybe I'm missing something or unfamiliar with how business taxes work...Or maybe there's a provision in the full text? I admit I haven't read the full text, though on a quick search, I don't see anything restricting it only to companies that sell things.... But how does it have anything to do with sales tax? Service businesses would still be structured as sole proprietorships, partnerships, or S-Corps, no?

Lots of winners and losers

That's a sign of good politics, right? Everyone agrees & nobody's happy? lol

[Singuy]

I wonder why they picked 35% income tax bracket to screw over the most with the marriage penalty.

Lawyers/doctors/health professionals/ are notorious for paying the highest rate because they don't have the deductions a small business would..and even if these people decides to open up a business, they still don't qualify for the small business pass-thru.

Also to most people, personal exemptions are worth more than standard deductions since personal exemptions can be moved to others in the form of dependent...and also mortgage interest/property tax usually supersede standard deductions of 12000/24000 a year anyways..so people are just going to be missing out on the personal exemptions in addition to their itemized deduction.

[Singuy]

Maybe I'm missing something or unfamiliar with how business taxes work...Or maybe there's a provision in the full text? I admit I haven't read the full text, though on a quick search, I don't see anything restricting it only to companies that sell things.... But how does it have anything to do with sales tax? Service businesses would still be structured as sole proprietorships, partnerships, or S-Corps, no?


That's a sign of good politics, right? Everyone agrees & nobody's happy? lol

This is a quote from WSJ about the tax reform today.

"The House tax bill provides a 25% top tax rate for pass-through businesses such as partnerships and S corporations that pay taxes through their owners' individual tax returns. But it places limits on that rate that would prevent many businesses—especially in professional services—from getting that rate"

[Thrif-t]

I'm soon to have 3 in college so I'm interested in the American Opportunity Tax Credit. Didn't really see anything in the 9 pages that specifically mentions it, just this:

WORK, EDUCATION AND RETIREMENT

The framework retains tax benefits that encourage work, higher education and retirement
security. The committees are encouraged to simplify these benefits to improve their efficiency and
effectiveness. Tax reform will aim to maintain or raise retirement plan participation of workers and
the resources available for retirement.

Fingers crossed it's not going away, it really helps us a lot!