The cut in withholding from paychecks will be gas on the deficit fire.

have to fix yet ANOTHER REPUB MESS!!!!

It will be the Dem-controlled Congress that will be forced to make the cuts to Medicare and SS and Veteran's Services to keep the government running!

That has to be the promise. That has to be the deal.

in the House and Senate in 2018...

and that might happen if 2018 is a huge landslide - with many deficit hawks seeing the writing on the wall. They might have enough votes would change the rules to something more reasonable on pass through income - especially from real estate activities (passive or active) that were huge giveaways'. They might stop all remaining steps towards eliminating the estate tax. Those two things cost much of the money. The third thing would be to relook at corporate taxes. Corporations, by and large NEVER paid the percent of taxes that the rates suggested - as they protected so much income through deductions, so the comparisons to what was actually paid in other countries was dishonest. Here, they will need to compute the new effective rates. It might be easier to raise that rate by eliminating some (less defendable) deductions - raising the effective rate to at least the previous effective rate.

The ONLY reason to have any hope on this is that it seems that - at least at this point - people agree with the Democratic view that the tax cut bill stinks. In addition, the excellent OP suggests that many will be unpleasantly surprised when they see their paycheck - assuming that withholding can be done to reasonably approximate the tax impact. (I am retired so I do not know if the IRS and employers have a new equivalent to the W4 form and formulas for companies to accurately compute the withholding. It might be they will try to use the old information to approximate the amount assuming that standard deductions are used. ) At any rate, they pushed this through so fast at the end of the year and made it effective almost immediately. It would seem unlikely that all companies will get this right. It might be a mess.

Not to mention - the impact on 2017 taxes. I could not turn on the tv or radio for more than an hour without hearing multiple times that people should pre pay property taxes for 2018 if they were already assessed or to create personal charitable accounts - where the money put in is ALL a contribution to charities now - not when you give it away in the future. (If you had the money now, you could put the next few years church or synagogue dues/donations there) Many charities also made the case for many people. that a donation last year would be tax deductible and in future years - because you would take the higher standard deduction - it would not be. It will be interesting to see if in aggregate, this has an impact.

The deficit could expand instead. And, indeed, that would be better than cutting things that are needed.

We'll need bumper stickers that say "Frump raised my taxes."

Since they raised the standard deduction, no matter what they say, charitable contributions to organizations will most likely decrease, which is a societal negative. Also, the medical expense floor has been lowered from 10%, back down to 7.5 % of AGI, which sounds like a good thing. However, many people will not be able to take advantage of itemized expenses (including medical expenses) because the standard deduction is higher. And as you said, yes, it looks great that the standard deduction is higher, but much of that is negated by the elimination of the exemptions.

believe they may not be as generous in their contributions since for many of them there will be no tax advantage, and why kick in that extra 100 dollars since they would not realize a lower income based on that deduction

"While I believe most people who contribute to charity will continue to do so"...

I typically donate a LOT of non-cash items. I seek out things to donate...tools that I know I will never use, an old suction cup dashboard compass...ANYTHING that I feel Goodwill will be able to sell.

I also go through the meticulous and time consuming process of documenting each donation down to the nth detail.

I will still donate a lot. But as far as going to that degree of work anymore...probably not.

Repug policy including this tax bill always increase demands on charities, yet their tax bill reduces the incentive to donate. Many will suffer as as result.

And, they don't give a damn.

While the middle class gets no benefit from charitable deductions.

GOP billionaires will still deduct their donations to Cato/Koch, Heritage, Sekulow’s ACLawJ, Bradley, Scaife, etc. So their dollars will carry even farther than ours when used for political purposes.

to help defray the extra costs of those conditions. They too, have gone away.

Great. Just great.

http://blog.aarp.org/2017/11/29/senate-bill-millions-of-older-americans-could-see-higher-tax-bills/

The personal exemption "is gone", as the article states. The effect is the same for those who take the standard deduction, but for those elderly with large medical expenses, who itemize. it's gone.

Quoted from the bill:

The Senate version says, "The additional standard deduction for the elderly and the blind is not changed by the provision."
The conference version says, "The conference agreement follows the Senate amendment."

The elimination for the additional deduction for blind and elderly taxpayers was on the cutting block in the representative version of the bill, but it was restored in the reconciled version:

The 2017 tax year will be just about the same filing wise as the 2016 year.

and the Exemption was $4050. ($6300+$4050 equals $10350). Next year the standard deduction increases to $12000 a $1650 increase.
For a joint return last year it was ($12600 + $8100 equals $20700). Next year the standard deduction increases to $24000 a $3300 increase. Most people will see a slight tax cut but inflation will likely increase, even a 1% increase would negate the tax cut.

of 1,300 was also retained. As you write inflation will wipe out the crumbs thrown to the plebs, but it is important to get the facts straight. The rise in healthcare costs due to the axing of the individual mandate and the likely rise in medicare costs to seniors as republicans cry over the medicare "crisis" will further negate the temporary benefits. But yes, we thrive on stone truth as opposed the republican's mush of lies.

which everyone could take. Now it's in the standard deduction, so it's lost to those elderly with large medical expenses, who must itemize.

to the small kick for seniors that used to be in addition to the personal exemptions. That is still there though they eliminated the personal exemptions you get for self, spouse, and children. It seems the medical expenses remain there though I take your point that you would have to be able to itemize more to beat the standard deduction. I'm too old to think about it much-don't want to jinx myself. Here's a link that seems credible enough: http://www.cpapracticeadvisor.com/news/12388205/2018-tax-reform-law-new-tax-brackets-credits-and-deduction

It used to be an exemption, which you took no matter weater you itemized or not.

Here is the 1040 form for 2016 taxes:
https://www.irs.gov/pub/irs-pdf/f1040.pdf

The only reference I see for being blind and/or over 65 is on line 39a, where it modifies the standard deduction. As you said, this doesn't apply if you itemize deductions and this hasn't changed.

I see nothing in the exemptions section related to being blind and/or over 65.

line 39A refers to "exemptions", which you got thru 2017 (tax return you fill out in 2018) whether you itemize or take the standard deduction. Now the add-on for the elderly is attached to the standard deduction, which, of course, you don't get if you must itemize because your medical expenses (possibly added to other, still-permitted deductions) are larger than the standard deduction.

From the 2016 1040 instructions,
https://www.irs.gov/pub/irs-pdf/i1040gi.pdf

See: https://ttlc.intuit.com/questions/1966704-over-65-personal-exemption

but at some time in my long life (could it have been as far back as '87, in the last big reform?), it became part of the itemized deduction, and I never noticed the change. Mea culpa.

Last edited Tue Jan 2, 2018, 01:36 AM - Edit history (1)

but i couldn't pin it down without a bunch more research.

I started doing taxes professionall after the change - so it's "always" been an add-on to the standard deduction for any returns I've done.

When it changed, neither my spouse nor I were old enough to take it, so I guess
I paid no attention. When I did start to take it -for just my spouse, at first - I guess I must have assumed I was taking the extra "exemption" I had learned about so many years earlier.

I was just remembering that when I did my first return when I was 16 in '58, it actually was on a postcard. My parents' wasn't, but mine was. Maybe I was just claiming a refund of my withholding. Returns were amazingly simpler then. I remember when we sold our first house, in '73, there was not even a form to report it. You reported it on a line for misc. income, then attached an "explanation" on a plain sheet of paper. If you bought another house of equal or higher price, you could roll the old basis into a new one, to be adjusted at the eventual sale, but if you didn't buy a new house, as we did not, you paid CG tax. Later, there was a "one time" exemption of , I believe, $250,000, so you had to decide if you would take it "now", even if you couldn't use the whole amount, or save it until you really could use up that large an exemption. That change, and the subsequent one, to the provision we have now, I clearly remember, but exemption to deduction. . . .

for the purpose of minimizing the capital gains. Even though we don't need it anymore.

Your reference to the 1987 changes prompted me to look up these:

FORM 1040 (1986) - IRS.gov
https://www.irs.gov/pub/irs-prior/f1040--1986.pdf

and,

FORM 1040 (1987) - IRS.gov
https://www.irs.gov/pub/irs-prior/f1040--1987.pdf

Notice the changes in Line 6. So, good hunch or recollection on your part.

I am a little concerned that I find this so interesting.

Once took an elective course where the final exam was having to prepare a return on a blank sheet of paper from a hypothetical family situation on the blackboard. I ate it up!

39a is an additional deduction, taken on top of either the standard or itemized (line 40).

From IRS Pub 551:

Been doing taxes too long (since '58). I stopped reading a long time ago; just plug in #'s where I know they go.

On the 1040: Line 39a (just above line 40 - which is either the standard or the itemized deduction).

The exemption is line 42.

that the new tax plan will not be as much as people think, and for those that currently itemize deductions, they will feel the most impact, and may very likely either break even, or pay more taxes especially if they live in a high income taxed state:

https://www.nytimes.com/interactive/2017/12/17/upshot/tax-calculator.html

and as you pointed out the increase due to inflation through housing, energy, food, medical costs, etc. will likely eliminate any tax cut benefit

reducing benefits to the poor only transfers a limited amount of wealth. You can't actually kill people en masse. After all, this is not Stalin's Soviet Union. Somebody might say something. There is a large, well-paid professional class (also called the Buffer Class) with many billions just waiting to be looted. And that's what this tax bill hopes to accomplish.

The advantage of doing this is that these people already work, many pretty hard and in order to stay the same, they'll work harder and have more to loot.

Ayn Rand warned us about the "looters". It just wasn't these looters.

And, I'll bet many in that "large, well-paid professional class" vote Republican!

Great post.

donate something

When I did tax returns back in the day I saw a lot of checks written with today's date. Those $100-$500 donations add up.

right?

BTW - they also eliminated personal exemptions AND standard deduction increases for people over 65 & blind/low vision.

Around 70% of Americans take the standard deduction now.

Those who already do will see a net tax cut with it doubled most likely.

Those who don’t may see one too, depending on how much over the current threshold they deducted and if it crosses the new threshold.

The problem is that they will see that reflected in paychecks next month and the GOP will be all over saying “look at your paycheck we gave you a tax cut”. But the real story won’t be told until time to file taxes, and that is a year away and 2 months after the midterms- so even people who will see an increase are often going to think they got a cut because that’s how their paycheck looked.

It’s no accident this was timed to make sure the first returns under new rules were just after the midterms and 20-22 months before the Presidential election.

elimination of the personal exemption applies to everybody, and it means the extra 4050 for single, or 8100 for joint needs to be subtracted from new standard deduction to determine the actual amount that will be subtracted from their AGI, to determine the taxable income.

With the right hand they are giving people an increased standard deduction, and with the left hand they are minimizing the impact of that increased standard deduction by eliminating the personal exemption.

The estimates for a couple who currently make around 25-75K a year who are married with no children will amount to about 520 dollar tax cut.

For that same couple who make around 25-75K a year who are married with no children who currently itemize deductions, if they live in a high tax state will have a 120 dollar tax increase, and if they don't live in a high tax state, there will be no tax benefit realized.

https://www.nytimes.com/interactive/2017/12/17/upshot/tax-calculator.html

and that refund will be quickly eaten up with increases in housing, energy, and medical expenses

Prop taxes in TX are high. I'm going it get jackd.

CPA friend at a party last night was ranting about exactly this.

are contributions to churches deductible under the new plan? If not, what about the Mormons? Shouldn't they be upset?

If you end up with negative tax liability. This will benefit large wealthy families most.

My home is a duplex and I live in one side and rent out the other. Consequently half my property tax, homeowners insurance, and mortgage insurance is an expense for the rental unit and gets accounted for on Schedule C rather than my deductions. I'll still be able to do that under the new rules so I'm unlikely to hit the $10,000 cap on deductability of SALT and will take the new standard deduction rather than itemizing. I won't know for sure if this is the case until I do my taxes in 2019 (for 2018) but if it works out as I expect it will be a good reason to increase my charitable contributions.

If the Dems get in in 2018, we need to push them to increase the corp rate and repeal the tax breaks for the wealthy. They should also increase the refundable EITC as this will put money in the pockets of those who need it most (ie. Not people like me).