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Summary - Tax Cut and Jobs Act 2017

2017-11-06 by Eva Rosenberg

legislation photo  On November 2nd, the House Ways and Means Committee unveiled a sweeping tax bill, Tax Cut and Jobs Act, designed to undo many of the complexities of the Tax Reform Act of 1986. Please understand that this is not law yet. There’s still a long journey, with lots of hurdles, before some version of this bill becomes law. Whatever happens, this won’t affect your 2017 tax return adversely. Most provisions will take effect for “tax years after 2017.”

In the meantime, let me give you a brief overview of how this law will affect you, starting in 2018. After all, you don’t want the entire 429 page information here, on something that isn’t really a law yet.

Please understand, my focus is on individuals and small businesses, only. I will not touch on the large, mult-nationals, and offshore profits at all, though, those provisions are an important factor in balancing the effects of this law.


Some abbreviations we will use are M = Married, S = Single, HOH = Head of Household.

AGI – Adjusted Gross Income – the bottom line on the page 1 of the long Form 1040.
Nonrefundable credits – the tax credits may only be used to zero out a taxpayer’s tax liability, not to generate any extra refunds.

Refundable credits – tax credits will be given to taxpayers in excess of their total tax liability – even if they have had nothing withheld.

Tax Credits – they reduce taxes, on a dollar-for-dollar basis.

Tax deductions – they only reduce income times your tax bracket.


  • Tax Brackets – Reduced to 4 brackets – 12%, 25%, 35% and 39.6%. Currently, we have 8 tax brackets – 0%, 10%,15%, 25%, 28%, 33%, 35%, and 39.6%  . (I know, you keep hearing that there are 7. The legislators keep omitting the current 0% tax bracket for the lowest income people!)
    • The lowest bracket of 12% will apply to the income of single people at $45,000, married couples at $90,000 and heads of household at $67,500.
    • The average person with income above those amounts will pay 25% until they reach these thresholds – S to $130,000, MFJ to $260,000, HOH to $195,000.
    • Folks will hit the 39.6% bracket when their income reaches $500,000 for S, $1,000,000 for MFJ and $500,000 for HOH.

  • Impact on you. There will no longer be a 0% tax bracket at all. So that may cause taxes to increase on the poorest taxpayers – if the increased family-related tax credits and increased standard deductions don’t reduce their taxes.

  • Personal Exemptions – all gone.
    • Impact on you. For 2018, your personal exemption would have been $4,150. A family of four would lose $16,600 in deductions.

  • Child Tax Credit – Increased to $1,600 from $1,000 per child under age 17
    • Impact on you. That $600 increase is designed to balance out the loss of the $4,150 per child. In a 12% tax bracket – that actually works.
    • The refundable portion of $1,000 (to be indexed for inflation) will require a Social Security number.
    • The income level to claim the credit has been increased – $115,000 (S), $230,000 (MFJ)  (possibly, although not specified – $172,500 for HOH)

  • Family Flexibility Credit – New – worth $300 per non-child dependent. It’s temporary – it expires on 12/31/2022. And it’s not refundable.
    • Impact on you. This is designed to replace the personal exemption for the taxpayer, spouse and any other adult (like a parent, girl-friend, college-age child). This still doesn’t really replace the value of the lost exemptions. It leaves a shortfall of about $300 per person.
    • The income level to claim the credit has been increased – $115,000 (S), $230,000 (MFJ)  (possibly, although not specified – $172,500 for HOH)

  • Standard Deduction – Increased to $12,200 (S), $24,400 (MFJ, and $18,100 (HOH) – under current law it is $6,500 (S), $13,000 (MFJ), and $9,550 (HOH)
    • Impact on you. This appears to be a significant increase in deductions you can use without having to report any expenses or save any receipts. This increase is designed to simplify your tax return preparation. This is, essentially, the basis of their “postcard tax return” concept.
    • For people who rent their residences and have jobs that reimburse all their expenses, this standard deduction and the increase in family-related tax credits will keep your taxes about the same as before – with fewer record-keeping requirements.

  • Itemized Deductions – All of them are being eliminated except for mortgage interest and property taxes. Even those deductions have new caps on them. This means, no deductions for moving expenses, employee business expenses, medical expenses, and so on. In addition, entertainment expenses are totally abolished – for business and employees. Tax preparation fees and fees for financial advice are no longer deductible. Note: The current phase out of itemized deductions and standard deductions for high-income taxpayers will be repealed. Not that it matters since we won’t have any exemptions or many deductions left to take.
    • Impact on you. Folks who traditionally have high deductions for medical expenses, job-related costs, and state tax deductions will be hit hard. All those deductions are gone. There is nothing to replace those tax deductions at all. Who will be the hardest hit?
      • The elderly and disabled who don’t have enough insurance coverage, or must pay for in-home care or must live in care facilities.
      • Employees who have unreimbursed travel and meal expenses.

    • Mortgage Interest – folks with current, qualifying mortgages will still be able to take their interest deductions. If you buy a new home starting in 2018, your mortgage interest deduction will be limited to the interest on a loan of up to $500,000
      • Impact on you. No impact if you keep your current mortgage. But if you refinance, you will only be able to claim the interest on the acquisition debt – probably up to loans of $500,000.
      • The interest deduction is limited to only one principal residence (unlike the two we used to be able to deduct)
      • No deduction will be allowed for home equity debt at all, on new purchases.
      • There is no longer a deduction for the PMI – mortgage insurance
      • They don’t discuss points – but assume that they are only deductible on a new purchase, not on refinanced loans.
      • NOTE: This $500,000 limit applies to all new loans and refinanced loans dated after November 2, 2017! So there is no time to do any refinancing or damage control.

    • Real Property Taxes – limited to a total of $10,000 – regardless of the number of properties involved.
      • Impact on you. Unlike the mortgage interest expense, existing property taxes are not grandfathered.
      • All other state and local tax deductions are gone – which is a bit hit for taxpayers in high tax states like New York, California, Illinois, etc. No effect on the 9 states that have no income taxes, or the few states, like Alaska, that don’t have sales taxes either.
      • Note: Businesses may still deduct all relevant state and local taxes related to their business operations.

    • Charitable Contributions – Still deductible. The limit on deductions rises to 60% of AGI, instead of 50%. There are more complicated provisions, especially with respect to the carryover of unused deductions.
      • Impact on you. For most people, the higher standard deduction will make deducting these donations impossible, since you won’t be able to itemize at all.
      • Impact on charities. Probably a reduction of donations from moderate to lower-income taxpayers. It will practically put a stop to the year-end donations of personal and household goods to charities and thrift shops, since the primary donors will no longer be able to use the deductions.
      • One small piece of good news for those who will still be able to itemize. For the first time in half a century or more, the IRS finally has the right to set the mileage deduction, and to increase it by inflation. It has been frozen at 14 cents per mile because only Congress could change that number.

    • Personal Casualty Losses – gone, except for federally declared disaster areas
      • Impact on you. If you experience a fire, theft, flood or other personal disaster and don’t get insurance compensation for the full amount of the loss – you won’t be able to take a deduction at all. You may need to reduce the deductibles on your various insurances. A real boon for the insurance industry.
      • However, if you are in a disaster area, you will still be able to claim the deductions.
      • Note: This does not impact business casualty losses. Those are still fully deductible.

    • Alimony Expenses – will no longer be deductible at all.
      • Impact on you. Spouses who pay out alimony, child support, or family support will no longer get any tax benefit for the share of the income they give to an ex-spouse. This will definitely cause a re-negotiation of all divorce settlements, since it will be so much more expensive to the paying spouse.
      • Good news: The person receiving the alimony will no longer be paying taxes on this income. So, when the amounts are negotiated downwards, it won’t be as painful.

    • Selling Your Home – in order to avoid paying taxes on the first $250,000/$500,000 of profits, you must now live in the home for at least 5 years out of eight.
      • Impact on you. It’s no longer going to be possible to make a living buying a home, fixing it up and selling it at a profit every two years – and to live tax-free.
      • Adult couples planning marry, who each own homes, might have to sell their homes before marriage, and buy a new home to live in together. Or to do some careful planning about the timing of home sales before and after marriage.
      • More bad news. This exclusion of profits is reduced, dollar-for-dollar, when your AGI exceeds $500,000. (Note: It’s not clear if we must take the excluded profit into account before computing AGI. I hope not.)

    • Education Deductions and Credits – Most have been consolidated into the American Opportunity Credit, with a fifth year of tuition providing an additional credit of up to $500.
      • Impact on you.
      • The Lifetime Learning Credit is gone. A bit of discouragement for folks wanting to continue to improve their skills or learn new skills as their jobs and industries are being phased out.
      • No more deduction for student loan interest.
      • No exclusion from income for interest on U.S. savings bonds.
      • No exclusion from income for tuition-reduction programs.
      • There will be some provisions for relief of debt for student loans that are unpaid due to death, total disability or other conditions.

    • Sec 529 College Savings Plans – New contributions are prohibited. But you may rollover funds, tax-free, from Coverdell plans (like a student IRA).
      • Impact on you. Future college savings will have to be invested in taxable accounts – unless you decide to buy your children whole life insurance policies as early in life as possible. Those funds will grow as you make annual payments. When your child is ready for college, he or she may borrow from the cash value of the life insurance policy with no tax effect.
      • Beneficiaries are expanded so you can designate a beneficiary to be a human fetus. (Yup, it specifies “species homo sapien,” not simian, or canine or ursine, or…)
        • Note: To designate a beneficiary, you must have a name, address and Social Security Number – so that is a rather absurd provision in the proposed law.

      • Funds may be used for elementary and high school costs up to $10,000
      • Funds may be used to pay for apprenticeship programs
      • And with all of these provisions, if you cannot make new contributions, none of this is really helpful, except to wealthy folks who front-loaded their family’s Sec 529 accounts with five years worth of maximum contributions – and have been funding these accounts since the birth of their children, grandchildren or relatives.

    • Tax-Free Employee Awards – Repealed.
      • Impact on you. Your employer used to be able to give you tax-free awards for achievements or safety each year worth $400 (up to $1,600 per year). They may still give you these awards. But the awards will be fully taxable.

    • Employer-Paid Dependent Care Assistance – Repealed
      • Impact on you. Your employer was able to provide a tax-free benefit of up to $5,000 for dependent care assistance. This is no longer a tax-free benefit.

    • Employer-Paid Moving Expense Reimbursements – Repealed
      • Impact on you. In the past, part of the moving expense reimbursements were tax-free – as long as they were for moving the household and direct transportation of the members of the household. The other relocation expenses were taxable. Now – it’s all taxable.

    • Employer-Paid Adoption Expenses – Repealed
      • Impact on you. In the past, your employer could provide up to $13,570 to help cover your adoption expenses as a tax-free benefit. This was in addition to the tax credit you could take for any expenses in excess of the job-related benefit. This benefit is gone.
      • Note: The tax credit for adoptions will still be available – as a nonrefundable credit.

    • Alternative Minimum Taxes (AMT) – Repealed
      • Impact on you. This was originally designed to ensure the wealthy paid taxes, even after their expensive tax planning was put into place. Instead, the income levels where the AMT took effect, affected taxpayers whose income was barely over the poverty level. For the average person, this is a valuable benefit.
      • However, instead of repealing the AMT, they should have left it in effect at much higher income levels – more like $250,000 or $500,000, instead of the $53,900 (S & HOH) or $83,800 (MFJ). This is a HUGE tax break for the wealthy.
      • Note: Most of the average income people who were affected were those who had high employee business expenses, or home equity interest. But since both of those deductions are gone anyway, the average person would not face AMT even without this provision.
      • Folks with an AMT credit carryforward may be able to use them up, at the rate of 50% per year, starting in 2019 – 2021. Whatever’s left may be fully used up in 2022.

    • Estate Taxes – The exclusion from estate tax is doubled to $10,000,000 per person, indexed by inflation. The estate tax totally phases out in 2023. The top estate tax rate drops to 35% from 40%.
      • Impact on you. Not much really. Since, according the IRS statistics of wealth, only about .34% (that’s about a third of ONE percent) of the population have assets in excess of $5 million dollars.
      • The good news. They did include a provision to keep the step-up in basis intact. Normally, when estate taxes are repealed, that also means that the heirs have to struggle to figure out the tax cost to the person who died. Getting a step-up in basis means that when you inherit something, your tax cost (or basis) is the fair market value (FMV) on the date of death.
      • Gift taxes will still be due on lifetime gifts of $10 million or more, indexed for inflation. The gift tax will be 35%
      • The annual gift tax exclusion will remain as is, currently $14,000 to any one person for 2017, and indexed for inflation. It will rise to $15,000 for 2018.

This only covers most of the information in the first 26 pages (out of 82 pages) of the summary of the proposed law, plus the estate & gift taxes and AMT. There are lots more things in there, both good and bad.

For more information, you will find some excellent articles and incisive summaries of this law written by folks like Kelly Phillips Erb at Forbes

and Kay Bell blog –  Don’t Mess With Taxes – and her articles at –

And the House Ways and Means press release announcing this plan can be found here –


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Tax Cuts and Jobs Act - Introduction

2017-11-06 by Eva Rosenberg

legislation photoToday TaxMama® wants to talk to you about the latest tax proposal from the House of Representatives.
It’s a doozey!

taxmama replies

Dear Friends and Family,

Last week, the House released their sweeping tax reform bill to public view. There’s a lot of excited or panicked chatter about this. Let me gives you a few pertinent facts.
And perhaps a few impertinent comments, too.

1) This is not law. It is a proposed (429 page) bill that the House of Representatives must discuss, dissect and vote on – probably in the next two weeks.

2) Once they have passed their version of the law, it will go to the Senate. In the meantime, the Senate is developing their own version of a sweeping tax bill. So, since there will be differences, the law still cannot pass.
3) It will go to the Joint Committee on Taxation – which is composed of members of the House and Senate. They will hash out their differences and produce a final version of the new, sweeping tax law.

All of this, if they work rapidly, might get accomplished before Christmas. After all, there is pressure on the Legislature to pass a bill this year.

Whether they do or not, here’s something to help you relax and enjoy your holidays. Whatever they do will have very little negative impact on you for 2017.

Practically everything in the proposed bill will take effect for the 2018 tax year. There might be a few provisions that extend some tax breaks to 2017 that ended on 12/31/2016.

So take a deep breath. Don’t panic. It’s OK for now.

You will find a summary of the proposal on this page – . Please look it over to see how this might affect you. Why, since I just told you to relax? Because you have time to contact your representatives in the House and Senate to let them know about provisions that really make you angry. YOU have time to improve the final version of the law – that we do know is coming.

The following link will help you reach all the right people.  Talk to STAFF – they have more power than you can imagine.

One last thing, once the law does pass, my publishers have asked me to put together a detailed explanation for you. We will be releasing that book first thing next year.

To make comments and toss in your own ideas, please drop into the TaxQuips Forum.

And remember, you can find answers to all kinds of questions about tax legislation and other tax and business issues, free. Where? Where else? At


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TaxMama’s TaxQuips End of Tax Season Payments and Tips

2017-04-17 by Eva Rosenberg

Today TaxMama® wants to talk about Extensions, Payments and End of Tax Season stuff.

Dear Friends and Family,

Today is April 17th. Don’t panic! Tax season isn’t quite over yet. You have until tomorrow to file your tax return or extension.  Here are some last minute tips.

But before I do, let me remind you (and pass this on those friends – you know who they are) that tomorrow is the absolute deadline to file the 2013 tax return and still collect a refund from the IRS. There’s a BILLION dollars sitting there, unclaimed.

OK – this year’s tips. (You may have heard or read them before.)

Do not file your tax return if you’re not totally ready with all the information. Get an extension. It’s free…sort of. Don’t just skip it until you’re ready. The penalty for filing late is 5% per month, up to 25%. The extension makes those penalties disappear.

To get an extension – use Form 4868 for personal extensions. Use Form 7004 to extend gift tax returns and trust or estate tax returns. Most states will accept the IRS extension. But make sure your state complies.

When you expect to owe money, but cannot pay it all, don’t lie on Form 4868. Enter the approximate balance you expect to owe. Pay at least $25 or $50 with the extension. (Never lie on the extension or it will be invalid.)

If you owe money, you need to pay it with the extension. You can use your credit card – and pay a fee.  Or you can pay online directly from your checking account with no fee using IRS’ Direct Pay. Make sure to select Form 4868 as the form and 2016 as the year you are paying.

If you absolutely cannot pay at this time because of a hardship, the IRS has a special form. Use Form 1127 to request an extension of time to pay for up to 18 months. There’s no guarantee they will accept it. But if they do accept this, you will avoid the late payment penalties. You will still owe the interest.

April 18th is also the last day to fund an IRA contribution for 2016.

And you need to make estimated tax payments for 2017, if you are self-employed or have investments. (Use the same payment links I gave you for the extension – just select Form 1040ES as the form – and use 2017 as the year.)

So you have a lot of demands on your money this week. What is the best strategy for allocating your dollars if your financial resources are limited? Read my 2012 Marketwatch column for guidance. The concepts and strategies are all still very valid. But use the links in today’s TaxQuip.

Please drop by and the TaxWatch columns for more tips.

To make comments and toss in your own ideas, please drop into the TaxQuips Forum.

And remember, you can find answers to all kinds of questions about tax payments and other tax and business issues, free. Where? Where else? At

[Note: If you were subscribed to the e-mailed version of TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join link – it’s free!]

Please post all Comments and Replies in the TaxQuips Forum.

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Getting Your Tax Return Done - in These Crazy Times

2017-03-13 by Eva Rosenberg

tax photo

Today TaxMama® wants to talk to you about getting your tax returns done – and where to get help.

Dear Friends and Family,

It’s the height of tax season. And this year, there is a lot of confusion about a variety of issues. More than ever, you may need the help of a tax professional. Where can you get help preparing your tax returns?

Did you know that only 3 states actually have testing, licensing and continuing education requirements for tax professionals? Yup! Only California, Maryland and Oregon. The other 47 states, DC, and US territories have nothing. In fact, there are over 400,000 tax preparers registered to file tax returns electronically who are unregulated (over 57% of all preparers).

So how can you ensure that your tax professional IS a professional and is up-to-date on current tax laws, especially in states without licensing?

First, start with a credentialed tax professional – there are three: Enrolled Agents, Certified Public Accountants, and Tax Attorneys. Then there are the licensed tax pros in CA, MD and OR.

To encourage the uncredentialed tax pros to take classes and to stay up-to-date, the IRS established a voluntary program. After completing 16-18 hours of courses, and for some candidates, a 100-question annual examination, they can get an Annual Filing Season Program (AFSP) Record of Completion. Only 50,951 tax pros out of the 400,000 tax pros without credentials have taken the courses. That means, over half the tax pros in the country have no license, and might not have bothered to keep up with changing tax laws.

The IRS’s directory of tax professionals will help you look up your tax pro. You will be able to see if their license, credential or AFSP is in good standing. You will be able to locate them by name or ZIP code. But you will not find and address or contact information for them. (The 350,000+ unlicensed and un-AFSP’d tax pros are not in the directory.)

How do you find the right person to help you? And which is right for you?

Enrolled agents (EAs) are tax specialists licensed to represent taxpayers before the IRS. The EA credential allows them to work anywhere in the nation. For tax planning and tax debt issues, bookkeeping and payroll, this is your best choice. You can find them at the National Association of Enrolled Agents (NAEA),

Certified public accountants (CPAs) are authorized to perform certified audits and issue financial statements. If you have a complex business and need much more than just tax returns – work with a CPA. You can find them the American Institute of Certified Public Accountants (AICPA),

Tax Attorneys are excellent choices if you need to create trusts, set up contracts and minutes, or deal with courts or criminal issues. They are usually too expensive for routine tax returns. You can find them at the American Bar Association

To decide if you’re better off preparing your own tax return, or working with a tax pro, read chapters 3 and 4 of Deduct Everything!

If you’re in business, you will find more details about building an advisory team in chapter 1 of Small Business Taxes Made Easy.

Please drop by and the TaxWatch columns for more tips.

To make comments and toss in your own ideas, please drop into the TaxQuips Forum.

And remember, you can find answers to all kinds of questions about tax filing and other tax and business issues, free. Where? Where else? At

[Note: If you were subscribed to the e-mailed version of TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join link – it’s free!]

Please post all Comments and Replies in the TaxQuips Forum.

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TaxMama’s TaxQuips Highlights of Trump Tax Plan

2016-11-09 by Eva Rosenberg

Today TaxMama® wants to give you an advance peek on what you can expect from a Donald Trump tax plan, coming to a Congress near you!

To read the details, please drop by here:

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