Author Topic: 2018 Income tax season - how did the tax changes affect you?  (Read 6867 times)

david123

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2018 Income tax season - how did the tax changes affect you?
« on: January 02, 2019, 06:54:32 AM »
I'm still running the numbers, but so far it looks like this will be the first time in a long time I can't itemize (due to the SALT cap of $10,000).

So my income will be higher, but rates will be lower - still trying to figure out the net effect, but I think I may be paying less in federal taxes this year.  Almost all my income is w2 (salary).

I'll post an update when I have the final information, but anyone else know how the tax changes last year affected them?  You can give percentages or relative numbers if you don't want to give your actual numbers.  I'm curious to see if the "tax cut" really saved individuals any money.
« Last Edit: January 02, 2019, 08:32:18 AM by david123 »

Sam

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Re: 2018 Income tax season - how did the tax changes affect you?
« Reply #1 on: January 02, 2019, 09:57:42 AM »
Gonna wait until the last minute to do my taxes as usual. But the SALT $10,000 cap is probably going to be a huge bummer for millions of coastal city residents who own property.

Property and income taxes are way more than $10,000 for those owning a median home in SF for example, with a $100K income. We're talking $16K prop tax + $5K state income tax.

I suspect the coastal city real estate market will take an extra hit due to SALT.

Regards,

Sam

jekamom

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Re: 2018 Income tax season - how did the tax changes affect you?
« Reply #2 on: January 02, 2019, 10:11:36 AM »
Still working it, but it looks like we will save substantially.  We have 2 S Corps and a tiny Schedule C business, along with about 3x that in w-2 wages from one of the S corps.  Our itemized deductions are lower, a little because of the salt cap but also because of some reduced (but still generous) donations and lower mortage interest (further into the 15 yr mtg). No medical deductions, but have fully funded our Family HSA, so some above the top income exclusion there-along with the premiums for health insurance being pretax due to being a 2% owner of SCorp.  Still itemizing for 2018, but plan to start bunching deductions in 2019 as mortgage interest continues to drop.
The 20% income deduction for S corps will help save us about $7500 in federal tax.  Not subject to AMT this year which is a BIG deal, and I have an OLD credit ($1000 general business credit thanks to Obama) I expect we can take finally.  Shorted a little on withholding (my fault-used the new tables and didn't account for our S corp income) so will owe some, but overall our taxable income shows down about 10% compared to last year and our tax bill is down close to 25% federal compared to last year--netting out a 15% savings if income were level.  I'll take that!
State looks like it will track along the lines of 2017---always right at 5%, no matter what!

couchfi

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Re: 2018 Income tax season - how did the tax changes affect you?
« Reply #3 on: January 05, 2019, 11:29:53 PM »
According to https://smartasset.com/taxes/california-tax-calculator, I'll be paying 1.3% of my gross income less in taxes if I had the same income as last year. Unfortunately, my income will be significantly higher this year due to a very likely company IPO making my RSUs taxable this year. Plugging those numbers in and it looks like I'll be paying 1% of my gross income extra in tax this year compared to if it happened last year :(

Fat Tony

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Re: 2018 Income tax season - how did the tax changes affect you?
« Reply #4 on: January 10, 2019, 12:21:23 AM »
Based on my spreadsheets, a single person in CA will pay less taxes in 2018 vs. 2017, until the $350K+ range. If you factor in property - everyone's is a little different, but you can multiply your federal with your estimated additional property tax deduction, to see where the breakeven point is. If you are paying 1.1% property tax on a $500K home, then that's about $5.5K of non-deductible tax, or 35% * $5.5K=$1,925 of additional taxes, moving the breakeven point to the $190K range (I would also consider the Pease limitation/itemized phaseout in 2017 to this as well, but let's keep it simple for now).

Basically, people in the $0-200K range are going to see substantial tax cuts. (In 2017, people would enter AMT "by default" without even property at the $200K-ish range just by virtue of state tax deduction). So the percentage of Americans who perceive they will receive the tax cuts is probably lower than the percentage of Americans who actually will receive a tax cut. The hardest hit are probably the absolute top bracket CA/NY taxpayers with large property tax bills and very high 6 figure income (think $500-800K)+, because at the very high 6 figures in 2017, you start getting out of AMT again, so you can take full advantage of the state tax deduction.

Here's what I have. Math done a year ago. Sam, or anyone, if you're interested in the source I'm happy to share the sheet.

(https://i.imgur.com/ELsG08U.png)

couchfi, you may want to verify the numbers again with AMT in 2017 assuming you're in CA. And congrats on the IPO!

That SmartAsset calculator is a good start, but doesn't take into account AMT in 2017 - which actually significantly changes the calculus. For whatever reason, most online tax calculators just say "AMT is too complicated!" and throw up their hands, when really you just need to add a few more formulas to your Excel sheet to do AMT. That's also why I think the loss of the SALT deduction is *way* overblown - you need to get really high up in the income brackets until 2017 tax rules are better than 2018. But because most people are not going to crunch the numbers, and for whatever reason no accurate calculator has been output, most don't realize.
« Last Edit: January 10, 2019, 12:23:59 AM by Fat Tony »

couchfi

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Re: 2018 Income tax season - how did the tax changes affect you?
« Reply #5 on: January 11, 2019, 01:06:38 AM »
couchfi, you may want to verify the numbers again with AMT in 2017 assuming you're in CA. And congrats on the IPO!

Thanks! Dual tech income in the bay area put the Mrs. and I in the AMT sweet spot in 2017, so we didn't pay AMT, but I did remember hitting it for the first time a few years ago and had to write a $10k check to the government in April instead of getting a refund like previous years.

TacosAndBurritos

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Re: 2018 Income tax season - how did the tax changes affect you?
« Reply #6 on: January 13, 2019, 11:11:24 PM »
While I got a tax cut in normal terms, my taxes actually went up substantially. I can no longer make un-reimbursed work deductions so I'm left out of ~15K at least just in that category. Add in other deductions I can no longer make and I'm out 20K+. It left a sour taste in my mouth but whatever, adapt and overcome.

My income from 2017 to 2018 almost quadrupled. So I learned about deductions and phaseouts. While I paid 3500 in student loan interest, can't deduct any of it. Seems like I was at the right place at the wrong time.

david123

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Re: 2018 Income tax season - how did the tax changes affect you?
« Reply #7 on: January 14, 2019, 06:29:19 AM »
couchfi, you may want to verify the numbers again with AMT in 2017 assuming you're in CA. And congrats on the IPO!

Thanks! Dual tech income in the bay area put the Mrs. and I in the AMT sweet spot in 2017, so we didn't pay AMT, but I did remember hitting it for the first time a few years ago and had to write a $10k check to the government in April instead of getting a refund like previous years.

My wife and I both work, and although I think I'm pretty good at doing my own taxes - I've never fully understood the AMT triggers.  Some years I get stuck by it, and some years I don't.  I haven't for a couple of years now.  I don't think I will this year.

Fat Tony

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Re: 2018 Income tax season - how did the tax changes affect you?
« Reply #8 on: January 16, 2019, 11:50:38 PM »
couchfi, you may want to verify the numbers again with AMT in 2017 assuming you're in CA. And congrats on the IPO!

Thanks! Dual tech income in the bay area put the Mrs. and I in the AMT sweet spot in 2017, so we didn't pay AMT, but I did remember hitting it for the first time a few years ago and had to write a $10k check to the government in April instead of getting a refund like previous years.

My wife and I both work, and although I think I'm pretty good at doing my own taxes - I've never fully understood the AMT triggers.  Some years I get stuck by it, and some years I don't.  I haven't for a couple of years now.  I don't think I will this year.

Most common reasons:

2017: ISOs, too many itemized deductions (specifically state taxes and property - state taxes alone will push a huge amount of single Californians into AMT above $200K)

2018: ISOs. Now that SALT deductions are capped at $10K, it's really hard to surpass this. Plus, the AMT exemptions are so much larger now that it's rather difficult

This blog post gives a great rundown on the AMT changes for 2018, and shows you the dollar value of AMT adjustments needed (both married and single) to trigger AMT in 2018. There are some older posts on AMT triggers for the 2017- years, and for 2026+ if someone is really masochistic and wants to plan for the end of TCJA.

https://www.kitces.com/blog/final-gop-tax-plan-summary-tcja-2017-individual-tax-brackets-pass-through-strategies/

https://www.kitces.com/wp-content/uploads/2017/12/Graphics_7-3.png

Jbinjville

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Re: 2018 Income tax season - how did the tax changes affect you?
« Reply #9 on: January 17, 2019, 02:39:34 PM »
It will help us quite a bit due to the 20% savings for S Corp income. We had a good year in 2018 so it wipes over $60K of taxable earnings off the top at a pretty significant tax rate.  Other than that I'm not sure. We don't have a mortgage and our property taxes are in the $4,500 range. I suspect the new standard deduction will actually help us also.

sfpf

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Re: 2018 Income tax season - how did the tax changes affect you?
« Reply #10 on: January 18, 2019, 11:08:36 PM »
I think I'm going to owe more unfortunately, but not totally sure yet. Really bummed about the SALT cap.

For those of you with S-Corps who are saving 20%, out of curiosity what line of business are you in if you are comfortable sharing? Does your business deal with physical inventory and products or is it service based? I was reading about the changes last year and it seemed like a lot of service oriented businesses are excluded (ex. accountants, lawyers, etc), so not every S-Corp will get the discount. There's also a complicated phase-out based on how much income one earned. I understood some of the changes but mostly it just made my head spin.

jekamom

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Re: 2018 Income tax season - how did the tax changes affect you?
« Reply #11 on: January 26, 2019, 04:43:10 AM »
Been reading on the law since first proposed. (I am not a tax professional)  We have two S corps.  One we own an office building that we rent out. We exceed caps in general for our income, so the cap on the amount that can be deducted (figure 20% of net income for a qualifed business) is limited in one of two ways.  First limit is the max of 25% of employee wages paid by the S Corp (not owners wages) plus 2.5% of cost of real property investment.  (Buildings and equipment cost).  For us, that limit (no matter how much more the 20% of S corp income is) is $0 plus about $8000 (2.5% of our buildings and equipment cost) = $8000 max deduction.  Our other business is a captive insurance agency.  Not an employee of the mothership but have a contract -- our S corp is paid commission by the mothership and a few other insurance companies.  (here's the article saying insurance agency S corps qualify:  https://www.insurancejournal.com/news/national/2019/01/18/515313.htm) In the case of this business, since our personal income exceeds the cap, and because we pay wages, our 20% is limited in a different way than the other.  For this one, we pay lots of wages to others but we have little in building or equipment cost.  For this one, 20% of our net income we can deduct is limited to 50% of the wages we pay others (no additional for equipment or buildings if we take the 50% rule).  So even if we managed $125K in net income, we would have to calculate the 20% based on a max of 50% of W2 wages paid to others for this one.  For us, it looks like we will end up with being able to deduct just under the 20% of net income because the calculated limited based on the wage cap is about $24K.  I am hoping I can add the two business limits together, we'll see! Obviously, I calculate conservatively, just in case, so we may not be subject to the enhanced caps after all, but figured for them anyway... Does that help?
« Last Edit: January 26, 2019, 07:09:01 AM by jekamom »

sfpf

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Re: 2018 Income tax season - how did the tax changes affect you?
« Reply #12 on: January 27, 2019, 06:58:22 PM »
Been reading on the law since first proposed. (I am not a tax professional)  We have two S corps.  One we own an office building that we rent out. We exceed caps in general for our income, so the cap on the amount that can be deducted (figure 20% of net income for a qualifed business) is limited in one of two ways.  First limit is the max of 25% of employee wages paid by the S Corp (not owners wages) plus 2.5% of cost of real property investment.  (Buildings and equipment cost).  For us, that limit (no matter how much more the 20% of S corp income is) is $0 plus about $8000 (2.5% of our buildings and equipment cost) = $8000 max deduction.  Our other business is a captive insurance agency.  Not an employee of the mothership but have a contract -- our S corp is paid commission by the mothership and a few other insurance companies.  (here's the article saying insurance agency S corps qualify:  https://www.insurancejournal.com/news/national/2019/01/18/515313.htm) In the case of this business, since our personal income exceeds the cap, and because we pay wages, our 20% is limited in a different way than the other.  For this one, we pay lots of wages to others but we have little in building or equipment cost.  For this one, 20% of our net income we can deduct is limited to 50% of the wages we pay others (no additional for equipment or buildings if we take the 50% rule).  So even if we managed $125K in net income, we would have to calculate the 20% based on a max of 50% of W2 wages paid to others for this one.  For us, it looks like we will end up with being able to deduct just under the 20% of net income because the calculated limited based on the wage cap is about $24K.  I am hoping I can add the two business limits together, we'll see! Obviously, I calculate conservatively, just in case, so we may not be subject to the enhanced caps after all, but figured for them anyway... Does that help?

yes helpful thanks!

david123

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Re: 2018 Income tax season - how did the tax changes affect you?
« Reply #13 on: January 28, 2019, 08:52:15 AM »
I'm still running the numbers, but so far it looks like this will be the first time in a long time I can't itemize (due to the SALT cap of $10,000).

So my income will be higher, but rates will be lower - still trying to figure out the net effect, but I think I may be paying less in federal taxes this year.  Almost all my income is w2 (salary).

I'll post an update when I have the final information, but anyone else know how the tax changes last year affected them?  You can give percentages or relative numbers if you don't want to give your actual numbers.  I'm curious to see if the "tax cut" really saved individuals any money.

So I'm almost ready to file.  Still waiting on official versions of a few documents.  Summary - 2 worker household (W2), 3 kids aged 16,18,20.  Relatively high incomes.

My deductions dropped from $68,800 in 2017 down to $25,600 in 2018 due to SALT limits.  I can still itemize due mostly to mortgage interest, but barely.

Federal effective rate went from 27.7% in 2017 to 28.3% in 2018.  I used AGI to calculate effective rate, I probably should have used total income.

Recovering Engineer

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Re: 2018 Income tax season - how did the tax changes affect you?
« Reply #14 on: February 05, 2019, 10:17:26 AM »
With ~$18k in state income taxes, ~$20k in property taxes, and the limit on mortgage deductibility I'm a little worried about this tax season. That said, no longer paying AMT I think I might come out ok. It's going to be hard to know the exact impact because I just bought the house this year so it's not an apples to apples comparison with last year. I'm considering running my 2018 numbers through 2017 TurboTax just to see the output.

jekamom

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Re: 2018 Income tax season - how did the tax changes affect you?
« Reply #15 on: February 06, 2019, 05:19:39 AM »
I'm considering running my 2018 numbers through 2017 TurboTax just to see the output.

Just run the numbers thru 2018 turbotax!! Remove the unknown! They don't charge you until you file!! I use quicken for my accounting during the year and they give me a pretty good estimate if my inputs are correct. 

Recovering Engineer

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Re: 2018 Income tax season - how did the tax changes affect you?
« Reply #16 on: February 06, 2019, 12:43:42 PM »
I'm considering running my 2018 numbers through 2017 TurboTax just to see the output.

Just run the numbers thru 2018 turbotax!! Remove the unknown! They don't charge you until you file!! I use quicken for my accounting during the year and they give me a pretty good estimate if my inputs are correct. 
I meant that for comparison sake. I'm doing my taxes with TurboTax for 2018 already. But the only way for me to really know if my taxes are more or less than they would be under the old tax laws is to put those same numbers into 2017's TurboTax. I didn't have property taxes or a mortgage in 2017 so just comparing my 2018 Federal taxes to my 2017 Federal taxes doesn't really say much.

Eric

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Re: 2018 Income tax season - how did the tax changes affect you?
« Reply #17 on: March 17, 2019, 01:36:00 AM »
Very helpful

Went from a full time W-2 wage earner to being a pass-through income earner

Sold my apartment in NYC at the top of that market. No more property tax and now a renter with middle America investment properties. Moved to a lower but not zero tax state.

Have a child and the extra tax credits help

Lower tax brackets help

Lack of marriage penalty helps

Waiting for my accountant to finalize my numbers but 2018 will certainly be lower under the new rules than the old rules.

Young And The Invested

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Re: 2018 Income tax season - how did the tax changes affect you?
« Reply #18 on: April 04, 2019, 08:25:42 AM »
No change in my tax circumstances but we went from last year's $2,500 refund (rude surprise- I didn't want to loan Uncle Sam money at 0% interest) to a $1,000 tax bill this year.  I made one additional withholding allowance claim on my W-4 in 2018 to lower that tax refund. 

However, I stopped there because I didn't know what to expect with tax reform.
https://youngandtheinvested.com/

david123

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Re: 2018 Income tax season - how did the tax changes affect you?
« Reply #19 on: April 05, 2019, 06:54:24 AM »
No change in my tax circumstances but we went from last year's $2,500 refund (rude surprise- I didn't want to loan Uncle Sam money at 0% interest) to a $1,000 tax bill this year.  I made one additional withholding allowance claim on my W-4 in 2018 to lower that tax refund. 

However, I stopped there because I didn't know what to expect with tax reform.

I've seen a lot of people talking about getting refunds or having to pay, and to me this has always be irrelevant.  I can play with my withholdings to get a huge refund, or have a huge bill - but it doesn't change how much tax I have to pay.  I think the more interesting analysis of the tax changes are given similar circumstances, did your taxes go up or down.  The rates all went down (that's good), but the deductions were limited (that's bad), plus there were all kinds of other subtle changes.