And if you make a ton of money through investing, and then give that to your kid? Then no one pays taxes on those capital gains, ever.
That was another aspect of the estate tax that I hadn’t known before last year. For large estates, more than half of the estate value is in unrealized capital gains, which have never been taxed at all.
We can’t double tax people! That would be Communism! Except people living in blue states who now have to pay Federal taxes on their State taxes. That’s ok.
Exactly, and you’re only getting taxed past that amount. That’s the part that makes the whole idea that this applies to any normal person in a way that is actually going to make them not rich anymore is just ludicrous.
His calculator is wrong, I used a commercially available web program. H&R Blocks and got slightly higher for the current tax $17, 734, vs $17,513. Also his taxes under the new program don’t correspond with the latest published in Forbes. The differences are small. It has been shown many times once you get beyond the standard deduction you give even mildly complicated taxes to 3 tax professional or programs you’ll get 3 different answers. Even if you want to believe random dude on the internet created an accurate calculator in a week the difference using his calculator is only $326. In any context , income, total taxes due that’s a small number.
Look I get $150K, in a forum with a bunch of middle aged, highly educated gamers, doesn’t feel like it is ton of money. I wouldn’t be surprised that is near the average or the median for the forum. But it is still is in in the top 10% of the nation.
I’m truly gob-smacked that some many of you are missing the forest for the trees. Limiting SALT to 10K, costs $150K family $1000-$1500 and maybe $3000-$5000 for DINKs making $300K, so what they are in a position to pay especially with lower brackets. The group really gets hit by SALT is the truly rich >1Million/year they end up paying an additional $50K in Federal taxes because of the limitation. That’s enough that Bloomberg found that many will end up paying a lot more in taxes under the new systems. That’s a good thing.
There are plenty of things to bitch about the tax bill: increasing the deficit, lowering the top bracket, the pass through, doubling the etate exemption. But whining about SALT, and lowering the mortgage limit, when the average American family is nowhere near paying $10K in SALT, nor a $750K mortgage is a just further example of how the Democrat elites are out of touch.
I think you might be looking too hard at the forest and ignoring the trees.
A fair number of folks on a tech/gaming related forum are going to live in states that are disproportionately affected my the SALT shenanigans and are looking at the long-term effects on their states’ economies. There is also the not-so-trivial point that the reduced rates ENDS in a few years while the SALT limit sticks around… so whether we’re benefiting, hurt or break even next year isn’t quite as important as what happens in the future. Or at least it shouldn’t be.
If I died tomorrow my heirs are getting millions of dollars in assets like Intel stock that is up 80x, Berkshire Hathaway up 4x, Vegas real estate I bought in 2009/10 that has tripled, even index funds that have tripled in the many years I’ve held them, I have paid tax on any of it and neither will they.
They really should give everyone a million dollar so lifetime inheritance exemption and then subject everything over that to capital gains tax with a basis of what higher of dead person basis or 1/2 the assets value (to account for the fact that old people generally have awful records).
So if normal family died with $1 million house and several hundreds in CDs, and stocks their two kids would pay nothing.
If a small business owner with a $10 million business died and want to pass his business to his 3 kids. They’d pay capital gains (20%) on $7 million- $3.5 million or $233K each.
That has always been my uneducated take on this. However I think the rub is that many who make that much have other means (companies, etc) in which to write some of that difference off. Tax accountants will find ways around this if you can afford them. Right now there are accountants and lawyers just pouring over the new law looking for loopholes.
(a) That much could kill the business.
(b) The guy could gift stock over several years and have the business buy him out at the same time.
But it’s effectively punishing local and state level taxation… Which is, in my opinion, generally better taxation.
For instance, I pay 2% to my local city. I have dramatically more control over how that money is spent than federal dollars.
This change creates incentive to cut local taxes, which will result in cutting local spending on services, and instead go to the federal government to fund those services, which is less efficient.
The BS around the strange sunsets is a legit criticism of the bill.
Higher earners in almost every state are affected by SALT. Texas doesn’t have a state income tax but a 500K+ house comes with a $10K property tax
That’s fair out of reach for the median Texan but affordable to somebody making $150K. In fact since plenty of couples making $150K in Bay Area are renters and not owners it is possible that roughly an equal number of Texans and California at the income level are going to be impacted.
But what is really going to be the impact to the income and why?
People making a million + will be able to move their income into the vast array of tax shelters the bill opens up, so I really doubt they will end up paying more federal income tax. You just have to convert some income to rent to a real-estate pass-through.
My friend, the trusts and estates specialist attorney, says that with the new law and some good ole fashioned legal loophole-‘sploitin’, the estate tax is effectively dead for amounts up to about $200 million - a good attorney can take the $11 million exemption and multiply it’s effect by 10 using various stratagems. IMO, that’s pretty close to getting of it.
The impact seems pretty marginal. A tech couple making $300K in Dallas or Austin probably has a nice home say $750k on which they pay $15K in property tax. They lose $1200 worth of Federal income tax.
That same couple living in the Bay Area has $1 million house which isn’t as nice, between property tax and CA Income tax they pay $25,00 and they lose $3600.
So what you are saying is that $10K taxes and a higher standard of living in Texas than CA wasn’t enough to cause people in CA to demand lower taxes, but losing $2400 in federal income deduction is going be a big deal. Eventhough 80%+ of the state population will be completely unaffected by the change?
You understand why I’m tad skeptical?
Stepping back to the big picture, although this tax bill is a bad law IMO, it’s also not that huge a change in the full context. It’s not grounds to panic. The worst thing about it is that it moves in the wrong direction: worsening wealth inequality and failing to stimulate demand.
However, I do think the politics of this will be in play in a big way in 2018. A lot of oxen got gored in this bill and there’s going to be some payback IMO. For example, I recently moved from Orange County CA (wealthy, conservative enclave south of LA) to Sacramento and my friends in the OC tell me the local talk-radio jocks are going completely bonkers about the SALT changes. Those OC congress seats are not that rock solid GOP so they could possibly be in play in 2018 and that would be quite big.
I’ve scheming with smarter friends for the last few weeks it is not so easy, even for us retired/self-employed.
For your Wall St. Banker/trader pulling in a $1 million from Cit or Goldman Sach it is going to be difficult, same thing for your tech CTO.
Now for real-estate tycoons, or small to a medium business owner, the pass-through law is tailor written for those folks.
I also believe Shape’s friends the next few years will be a great time for a Billionaire to die.
I don’t understand this example. If I die and I own a $10m business my heirs won’t get capital gains taxed on it because the either $10m is a valuation and not a real monetary value (e.g. requires an exit or IPO to turn into actual cash) or the company has $10m in cash in a company bank account. In either scenario no one is getting capital gains taxes because ownership of the business is transferred to the heirs, not the cash itself.
The only way I see that anyone pays taxes in this scenario is if the company has $10m in cash and pays themselves dividends as owners of the company, which makes perfect sense that they would be taxed in the same way if I take money out of my non-inherited company.
As I mentioned, if the income is reduced to $130k, then the family owes more taxes using the same parameters. This is because the family with $150k gains a little bit more from reduction of tax rates.
And by the way, the website I mentioned gives you breakdown of the cost. If anything, the state tax is on lower side. They’re perhaps adjusting for the refund you get from state (which is counted as income for federal tax purposes), so the resulting tax you paid with the older tax system would be a bit less.
Finally, the $22000 of deduction that I mentioned isn’t apples to apples between new and old tax laws. Since the website doesn’t add VLF, and CASDI deductions, I lumped all that into “Other Deductions”, but that $22000 deduction becomes $20000 deduction in the new laws, as CASDI and VLF are part of SALT, which is already capped by $10k property tax. That is, the family would pay even more tax than what is calculated by the site.
No, once you go beyond the $200k range, your taxes in the previous rules were severely dictated by AMT, which actually makes a lot of SALT deductions pointless. In the new bill, I think the AMT is more relaxed, so truly high earners will actually save more. That is, not even considering the much better tax brackets or the truly gigantic pass-through rates break.
The SALT cap specifically hits families which were under AMT limit (around $120k - 160k income)
Remember…none of this stuff truly hits the fan for another year. So anyone who thinks they get a break filing this years taxes will be in for a surprise. And yea, there are lots of people out there that stupid.
You realize that new tax bill considerably reduces the impact on AMT on upper-income families, by increasing the exemption, and expanding the phaseout while retaining it for the super rich (> 1 $million) who were the original target of AMT. It is pity they didn’t completely junk the AMT but they did make a dent in it.
I understand, I am saying if I was God. I’d replace the current estate tax and replace it with an inheritance tax.
One of the reason, the estate tax is so unpopular, despite it pretty much exclusively hitting the super rich, is that a majority of Americans think they owe tax on money they inherit. So for them estate tax seems like double taxation. “You tax dead people and then you tax their heirs”
Rather than convince most American that they are wrong about the facts. Let’s make the tax system conform to the perception. Eliminating the estate tax and saying the first million is inherited tax free and the rest is lightly taxed 10-20% I think would generate more revenue than our never endeing fights about the estate tax.
I mentioned AMT because you were treating SALT caps as some huge change for very high earners, who could deduct lot more before. That’s not true. Above $200k or so of income, you always had to compute more taxes, by re-adding SALT (and few other deductions) to the income.
Any relaxation in AMT now helps the same $200k+ income families, although SALT is capped, so there won’t be too much difference in AMTI anyway.
For families that were under AMT limits, who could also deduct a fairly significant amount through itemized deductions, the SALT cap is a big deal, and is the reason some of them will now pay more in taxes.