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2017 Federal Tax Reform

Some of what is being proposed is seriously different than current taxation.
It would have some far reaching implications from what I see.
It does seem to put younger people into heavier tax burdens.
Here's what I'll start with:
Highlights of the bill in current form.

Individual tax rates will change
The plan establishes three tax brackets, 12, 25 and 35 percent, and also keeps a top rate of 39.6 percent for the highest-earners, collapsing the total number of brackets from seven. The brackets fall along the following lines:
Those making up to $24,000 will pay no income tax. For married taxpayers filing jointly, those earning up to $90,000 will be in the 12 percent bracket; those earning up to $260,000 will in the 25 percent bracket and those earning up to $1 million would fall in the 35 percent bracket. Those making above $1 million will be in the 39.6 percent bracket, which is currently the top rate for millionaires. For unmarried individuals and those filing separately, the bracket thresholds would be half of these amounts, other than the 35 percent bracket, which would be $200,000 for unmarried individuals.
Changes for the middle class
The proposal roughly doubles the standard deduction for middle-class families, expanding it to $24,000 for married couples, from $12,700, and setting it at $12,000 for individuals, from $6,530 today. Republicans also plan to expand the child tax credit to $1,600 from $1,000 and add a $300 credit for each parent and non-child dependent, such as older family members.
Some tax credits are eliminated
The bill includes a host of changes that will impact taxpayers in different ways. For instance, it repeals certain tax credits, including a 15 percent credit for individuals age 65 or older or who are retired on disability. Right now, those individuals can claim up to $7,500 for a joint return, $5,000 for a single individual, or $3,750 for a married individual filing a joint return.
The House bill would entirely repeal that tax credit. It would also repeal the adoption tax credit, no longer allow deductions for tax preparation and repeal credits for alimony payments. And deductions for moving expenses would no longer be allowed.

No changes to 401(k) retirement plans

After much nail-biting debate the House will not make any changes to the pretax treatment of 401(k) plans. “Americans will be able to continuing making both traditional, pretax contributions and ‘Roth’ contributions in the way that works best for them,” the talking points say.


Changing the mortgage interest deduction

One of the biggest flash points will be proposed changes to the popular mortgage interest deduction. Under the Republican plan, existing homeowners can keep the deduction, but future purchases will be capped at $500,000.


The National Association of Realtors came out swinging against the bill, suggesting a huge fight awaits over how real estate is treated.


“Eliminating or nullifying the tax incentives for homeownership puts home values and middle-class homeowners at risk, and from a cursory examination this legislation appears to do just that,” said William E. Brown, president of the National Association of Realtors. “We will have additional details upon a more thorough reading of the bill.”


Jerry Howard, chief executive of the National Association of Homebuilders, said he was very disappointed in the Republican tax plan and warned that it could create a recession in the housing market.

“It puts such severe limitations on home buyers ability to use the mortgage interest deduction that home values will fall,” Mr. Howard said in an interview. “If a home seller takes a loss, that’s money they were counting on for retirement.”
The full house bill is here:
It is a bit difficult to decode, since it is making amendments to prior law.


From what I think I can tell quickly (all subject to change and I may not be right in my interpretation of a complicated document):


1. It only applies for tax years after December 31, 2017

2. There will still be inflation indexing on brackets, etc., after 2018.

3. To exclude the gain on a prinincpal residence, it now has to be the prinicipal residence for 5 of the last 8 years.

4. There will still be a 0% tax on Long Term Capital Gains, but it seems to be at a separate limit of $77,200 MFJ (half for singles).  Above that, it is 15% up to 479,000, where it is then 20%.  However, I believe they have not done aything with the 3.8% medicare surcharge, so that woud be on top.

5. You will no longer be able to recharacterize a ROTH conversion back to a traditional IRA.

The devil is in the details.
So if all this holds true and you know it won't, my bracket jumps to 35%, but my LT cap gains go to 0 so in the end it all may be a wash, or not or.... I'll wait for the end result and then figure it all out.
Like every tax plan since Reagan it is a shift in revenue collection between the Federal government and the States.  Reagan cut taxes and his administration (and those following) proceeded to hand down unfunded mandates to the states and decreased Federal contributions for roads and other services, so in the end all of us in the middle classes ended up paying more for services.  I don't know what will finally come out of this bill but you can assume there will be little change in what is paid by the middle class.  It seems, on the surface, that corporate tax reform will substantially benefit owners of Sub-S Corporations and LLCs that are taxed as pass through to personal tax returns will see their maximum taxes lowered to the 15% to 20% target corporate rates - this will not benefit the small business owners since most of these choose the pass through options because it usually results in lower taxes, particularly for those that benefit by depreciation deductions. 
In the end what I personally expect is an acceleration in stock market price growth and the beginning of another bubble similar to what happened in 2007 and 2008.  I don't expect any growth in business investment, or more job creation than is presently going on.  We are in the beginning of a revolution in manufacturing and intelligent systems that will end in a more dramatic change to society than the industrial revolution.  Tax rule changes and pretending we can return to labor intensive manufacturing will not serve us well.
Apologizing in advance for rambling.
As a middle class taxpayer for 5 decades, there does not seem to be any tax relief in this bill that will flow my direction.
But it does seem that Corporations are held in higher regard than us people.
I thought they had it made at becoming people too but they must need more.

As a business owner I can tell you that if we paid less taxes, we'd pay higher wages and invest in more equipment.
If I get a big tax cut, I'm going on vacation. Heck with investing in equipment, I can keep repairing it.

Any of you who are taking a close evaluation of this plan - I do have a question - how likely is it that the "the average US household will save $4,000 in taxes"? - anyone, thanks for answering as best you can
No one cares that high tax states (California) will have deductions sharply reduced? I fully expect to be a middle income earner that will have to pay higher taxes. Are there really enough votes without these states voting in favor of this tax increase for their constituents? I have not seen a vote count yet on this proposed legislation.
(11-28-2018, 03:08 AM)Dee18 Wrote: If I get a big tax cut, I'm going on vacation. Heck with investing in equipment, I can keep repairing it.

Any of you who are taking a close evaluation of this plan - I do have a question - how likely is it that the "the average US household will save $4,000 in taxes"? - anyone, thanks for answering as best you can

Everything I've seen says it will add to the deficit.  If your table was correct, it would reduce the deficit significantly.  I believe we're missing something somewhere. 
I don't think you will pay more in the end, due to the 24K flat standard deduction AND the lower rates AND the levels at which the new rates kick in.
I did a bunch of what-if checks, and I think you are more than likely to come out a little ahead.
Maybe not as ahead as someone from WV or Montana...but still a little ahead.
There is WAY too much noise in the news coverage about this plan.....I assume it is to try to sink it, which is more about politics.
The way I see this plan: Almost everyone will come out ahead..some by a little, some by a lot.
People who want this to fail will focus on the "unfairness" of some people getting back a bit more.
I think the big picture is that it will boost the economy and the market, which will help everyone...but if you have more invested, you'll benefit more...which some will see as "unfair".
This is a pretty good plan overall. It goes after many special interest carve outs.

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