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The Great Tax Reform

Published by Ed in Society · 26/12/2017 20:12:59
Tags: IncomeTaxUS2018

Tax reform has finally been passed by Congress and signed by the president. While I have not seen too many coherent details coming out through mainstream media (and the IRS has apparently been blindsided as they have not much to say yet), some of the key things seem to be:

  • I get to choose between taking a $12000 standard deduction or itemizing.

  • If I itemize I don't get to write off mortage interest AND property tax AND state income tax like I did before.

  • Tax rates are going down (for a few years at any rate)

  • Income from 'pass-through' entties is taxed at a lower rate than earned income?

So assuming this is right, what will this mean for me?

  • Losing the ability to write off a bunch of stuff, I will probably have to settle for the standard deduction. This sucks and despite a lower marginal tax rate I thoroughly expect to get it up the ass from the IRS  in April 2019. In reality,the IRS gets to take the blame as people don't seem to realize that they don't make the tax laws, they just enforce them - my expected ass-reaming really comes courtesy of Trump and our bought-and-paid-for Republican congress.

  • Since I am unlikely to be itemizing, this is going to make charitable contributions more expensive. So fewer and smaller contributions. Tough luck starving orphans!

  • If pass-through income is cheaper, then maybe its time to set up an LLC and do my full-time job (and maybe some side gigs) through that?  That's going to take a bit of analysis and will also depend on what I can write off as 'business expenses'

The changes to deduction rules seems to be targeted primarily at punishing people in the more liberal states which have both significant property and income taxes.  For example,  both Massachusetts and Oregon (flaming liberal) have high property and income taxes - and you average homeowner will probably not be too happy next year, as being able to deduct the full tax burden makes a real difference in  your federal taxes. In contrast, a state like Florida, with no income tax and low property values and taxes, the $12000 standard deduction is going to be a windfall for a lot of people. I bet if someone did a state-by-state analysis of winners and losers fo rthis tax bill, it would look a lot like a red-blue map.

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