PILOT SPIN
Spin Zone => Spin Zone => Topic started by: Rush on February 07, 2019, 08:43:35 AM
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So I have to do my mom's taxes and turns out she didn't get a cut, she has to pay a little more. It's because she has a lot of itemized deductions so gets no advantage from the higher standard deduction, but they eliminated the personal exemption, which in the past would be tacked onto the itemized deductions. Even though her marginal rate went down, because her taxable income went up by about the amount of the old exemption, it worked out she'll pay a bit more.
To illustrate the numbers, her itemized deductions are $15,000 and in 2017 you add the personal exemption of about $4000 or whatever, so that was a total $19,000 reduction to her taxable income. But in 2018 she still has the same $15,000 itemized deductions, but no exemption, so only gets a $15,000 reduction in taxable income.
The standard deduction being raised from $6000 to $12,000 doesn't help her at all. The new tax law was sold by saying, well the $4000 exemption goes away but you get it back with the higher standard deduction.
So help me think this through. Is it unfair that people who have high itemized deductions now don't get quite the break? Or is it "more fair" that they pay more because they were actually getting breaks all along that the rest of us weren't?
This calls into question why we get deductions anyway. What's the theory? You get to pay less taxes because you spend money on certain things like medical care, employee expenses, local taxes, mortgage interest? So what? I should get to deduct what I spend on FOOD for godssakes. Maybe all itemized deductions need to go away.
I read somewhere that the exemptions are only eliminated through 2025. Does that imply they might come back? I don't know how this sausage is made.
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fairtax.org
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Rush,
Personal exemptions are suspended for 2018 - 2025. That’s when these lower rates and other things expire and revert back to the scheme that existed in 2017, unless made permanent or otherwise changed by congress before then. Only the 21% corporate rate charge is “permanent”, meaning that it won’t expire.
If your mom is 65 before the end of 2018 and single, she should be able to get an additional standard deduction of $1,600.
The theory of itemized deductions was to shape behavior of Americans, and to mitigate adverse life matters to some extent.
Medical expenses were deductible over a high threshold and really only applied if someone had extraordinary medical expenses.
Mortgage interest and the deduction for property taxes were designed to encourage home ownership, a laudable goal for Americans.
Similarly the deduction for charitable contributions was designed to help encourage philanthropy.
And on and on.
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Rush,
Personal exemptions are suspended for 2018 - 2025. That’s when these lower rates and other things expire and revert back to the scheme that existed in 2017, unless made permanent or otherwise changed by congress before then. Only the 21% corporate rate charge is “permanent”, meaning that it won’t expire.
If your mom is 65 before the end of 2018 and single, she should be able to get an additional standard deduction of $1,600.
The theory of itemized deductions was to shape behavior of Americans, and to mitigate adverse life matters to some extent.
Medical expenses were deductible over a high threshold and really only applied if someone had extraordinary medical expenses.
Mortgage interest and the deduction for property taxes were designed to encourage home ownership, a laudable goal for Americans.
Similarly the deduction for charitable contributions was designed to help encourage philanthropy.
And on and on.
Ah I see. You're right, her "standard deduction" is $13,600 as I dig into this return.
I also read that alimony has changed to be taxable to the payer and not taxable by the payee. I feel like that just further financially ruins men who are driven away by bitchy wives. Are they trying to encourage men to stay married?
I don't think I like this sort of nitpicky social engineering. Home buying should be encouraged by a strong competitive construction market, not government tweaking.
And they NEVER should have tied medical insurance to employer tax breaks. That is a disaster - you lose your job you lose your medical insurance.
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Rush,
Personal exemptions are suspended for 2018 - 2025. That’s when these lower rates and other things expire and revert back to the scheme that existed in 2017, unless made permanent or otherwise changed by congress before then. Only the 21% corporate rate charge is “permanent”, meaning that it won’t expire.
If your mom is 65 before the end of 2018 and single, she should be able to get an additional standard deduction of $1,600.
The theory of itemized deductions was to shape behavior of Americans, and to mitigate adverse life matters to some extent.
Medical expenses were deductible over a high threshold and really only applied if someone had extraordinary medical expenses.
Mortgage interest and the deduction for property taxes were designed to encourage home ownership, a laudable goal for Americans.
Similarly the deduction for charitable contributions was designed to help encourage philanthropy.
And on and on.
Speaking of the 21% corporate rate change, I just discovered the 199A rule where pass through businesses can take a 20% deduction off their QBI (qualified business income) if they are under the total income limit. That’s because the 21% corporate rate is lower than the personal rate once you get out of the bottom bracket. Pass through companies such as sole proprietorships, partnerships or S corps shouldn’t have to pay a higher rate than big corporations (unless you’re “rich” apparently... defined as $157,500 if single and $315,000 married joint) They thought everyone would rush to incorporate and stop filing their business with their personal 1040. So this rule is meant to adjust for that. Once you hit those income levels the deduction is gradually phased out and also does not apply if you are in a list of specific trades or businesses (SSTB), however the SSTB exclusion does not apply if you are under those limits.
So my question is, if the corporate rate change is permanent, does the 199A rule also stay? I should think it would be even more applicable if the personal rate goes back up. Maybe they should even increase the deduction over 20%.
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Speaking of the 21% corporate rate change, I just discovered the 199A rule where pass through businesses can take a 20% deduction off their QBI (qualified business income) if they are under the total income limit. That’s because the 21% corporate rate is lower than the personal rate once you get out of the bottom bracket. Pass through companies such as sole proprietorships, partnerships or S corps shouldn’t have to pay a higher rate than big corporations (unless you’re “rich” apparently... defined as $157,500 if single and $315,000 married joint) They thought everyone would rush to incorporate and stop filing their business with their personal 1040. So this rule is meant to adjust for that. Once you hit those income levels the deduction is gradually phased out and also does not apply if you are in a list of specific trades or businesses (SSTB), however the SSTB exclusion does not apply if you are under those limits.
So my question is, if the corporate rate change is permanent, does the 199A rule also stay? I should think it would be even more applicable if the personal rate goes back up. Maybe they should even increase the deduction over 20%.
Section 199A brings the top individual rate of 37% down to an effective tax rate on qualified business income of 29.6%, presuming your business qualifies for the full 20%. Lots of requirements to get there.
(.37*(1-.20))
Sec. 199A expires for tax years beginning after 2025, the same time the top individual rate moves back up to 39.6%.
Not well thought out by Congress.
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It's amazing to see all the news stories about people being pissed about smaller tax refunds. Then waaaaaaaaaay down the story it finally says that taxes are lower and withholding was lower so people really ended up with more money. But no... they only see their refunds, not the larger paychecks. Tax refunds are NOT gifts from the government!
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It's amazing to see all the news stories about people being pissed about smaller tax refunds. Then waaaaaaaaaay down the story it finally says that taxes are lower and withholding was lower so people really ended up with more money. But no... they only see their refunds, not the larger paychecks. Tax refunds are NOT gifts from the government!
It’s shocking the number of people that can’t see that all they’ve done is give the government an interest free loan when they get a rebate check.
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Not well thought out by Congress.
Surprise
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It's amazing to see all the news stories about people being pissed about smaller tax refunds. Then waaaaaaaaaay down the story it finally says that taxes are lower and withholding was lower so people really ended up with more money. But no... they only see their refunds, not the larger paychecks. Tax refunds are NOT gifts from the government!
Are you telling me the news is spinning people who are actually paying less taxes but had less withholding and so are getting smaller refunds as if they are paying more in taxes? Talk about fake news!
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Are you telling me the news is spinning people who are actually paying less taxes but had less withholding and so are getting smaller refunds as if they are paying more in taxes? Talk about fake news!
Yep.
https://www.cnn.com/2019/02/09/politics/tax-code-early-returns-data/index.html
Big headline: Average tax refund down 8% so far this season
Then way down the text:
Some workers saw a bump in their take-home pay after employers started using the new IRS income tax withholding tables.
But experts have said people could see smaller refunds than expected if they didn't adjust their paycheck withholdings after the changes took effect. Others could see their tax burden increase because the revised code eliminated some popular deductions.
So you have to adjust your withholdings so you get the largest refund possible? Yeah, that makes sense.
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Yep.
https://www.cnn.com/2019/02/09/politics/tax-code-early-returns-data/index.html
Big headline: Average tax refund down 8% so far this season
Then way down the text:So you have to adjust your withholdings so you get the largest refund possible? Yeah, that makes sense.
Well it’s CNN so.....