Added to my original post about lumping and referenced other thread about income acceleration.

@c3 said in Steps to take in 2017 for the upcoming tax changes:

It looks like my ordinary income rate will increase, and long term capital gain rate will decrease. Therefore, I’m taking STCG this week and LTCG next week.

Aha - I thought you were chasing free toothbrushes. Anyways, I created a new thread - “Should you accelerate income/stock gains to 2017 due to tax changes?” - you may want to read that.

Should you accelerate your income to this year? This one really boils down to your effective tax bracket for this year and next year. Knowing actual tax bracket is really hard due to the myriad of tax rules. For example, even though the stated AMT tax rate is 28%, in reality it is 35% - the reason being that for every dollar of income you lose 0.25 cents of exemption. The way you can estimate your real tax bracket is change your income in the tax software by $1,000 and see what change it produces in taxes. If your taxes change by $350, your tax rate is 35%.

This is without considering the state taxes. So if your state bracket is 10%, then you will be paying 10% to state and 35% to federal – i.e. you total tax bracket is 45%.

However, if you are not subject to AMT, then we can play some games with the total tax bracket. Let us say that your federal tax bracket is 25% and state tax bracket is 8%. So at first blush it seems that your total tax bracket is 33%. However, if you ensure that your state taxes are paid off this year, then you can deduct that 8% from federal taxes. So now you would save 25% on the 8% payment – i.e. you will save 2%. So now your total tax bracket is 31%. This is really powerful for high wage earners – those subject to 39.6% taxes and living in states like CA. Example – state tax bracket of 11.3% and federal bracket of 39.6 – so by paying taxes this year, the state tax deduction amounts to 0.396*11.3 = 4.5%.

You need to compare your overall (federal + state) tax bracket with next year to make a decision on accelerating income or not.

One of the things that you control for income appreciation is stock selling. One thing to mention with gains versus losses is that IRS is gains are not subject to wash sale rule. You can sell something, book a gain and rebuy that stock 2 seconds later and you still have booked a gain (though if it is dividend producing stock you may have altered the “qualified nature of the dividend” unless you hold the newly acquired stock for 60 day period after that). But for losses, you need to wait for the wash sale period of 30 days to rebuy something.

First let us look at LT gains. Is it worth accelerating LT gains to this year? While it is true that the tax brackets are reducing, the LT rates are not changing and there doesn’t seem to be a benefit of taking the taxes this year. However, if you are not in the AMT region, then the big difference is that you can deduct the state taxes from the federal taxes this year. The % you will save on LT gains by accelerating this year is going to be: 2017 federal rate * 2017 state tax rate (e.g. 0.25*0.08 = 0.02 as was mentioned earlier or 4.5% for high income earner in CA). But you get this advantage - only if YOU PAY MAKE THE STATE TAX PAYMENT THIS YEAR. If you don’t, there is no benefit. At 2%, it is probably not worth doing anything but at 4.5% - I am accelerating gains to this year.

Now let us look at ST gains. ST gains/losses are just like are normal income. In general, my recommendation would be that unless there are reasons for you to sell a stock, don’t sell a stock just due to tax reasons – instead let it keep growing until you have converted ST gains to LT gains at which point you get a nice reduction in tax rate that should offset the tax shenanigans. But some short sales are always short term transactions – example – the option part of covered call, short puts etc. For the most part, new tax brackets for 2018 are lower than 2017 tax rates – so accelerating ST gains may not make much of a difference. However, you would have to look at the combined effect of being able to deduct the ST income from state taxes. Even then the difference is very likely to be 1-2% at which point, it may not be worth accelerating ST gains and paying money to IRS early. And if you are in AMT region where the effective tax rate was 35%, you probably don’t want to accelerate ST gains this year. But the reverse may be true – if you can accelerate your ST losses such that you take 3,000 of capital losses, those losses might be worth more this year.

For myself, I am just trying to moving my LT gains to this year but I don’t want to do anything stupid. I believe in “NOT PAYING TAXES” – so will not cash out all my LT situations. However, I have situations like BA where the stock has gone up so much that I am more comfortable in liquidating that position and using the money to pay off my mortgage and diversifying into other securities. As far as I am concerned, the Trump tax bill is now fully factored into the stock prices since he signed the tax bill on Fri morning while the stocks were still trading. Now the market will start focusing on the next quarter earnings.

Right now I have some LT gains and some ST losses. Goal is to wipe out my ST losses so that they don’t eat into my LT gains. But most of the ST gains will be done through closing my short put/call positions and not by taking gain in positions that I expect will mature into LT gains later. Short positions must be closed on Dec 28 this year to have your broker include in that this year’s statement.

Happy trading!

@cpaynter said in How will the new tax bill affect your taxes?:

@fasttimes said in How will the new tax bill affect your taxes?:

On a personal note, I find this plan to be disgraceful. I don’t need a tax cut. The wealthy certainly don’t need a tax cut. It boggles the mind that people who make 50k a year still support Trump. I heard on the radio the average “savings” for people under 75k a year is $18 a week. Don’t spend it all in one place.

I’m glad you’re flush enough to not need a tax break. I’ll say it, I need a tax break. I’m tapped out. And instead I get a $250 tax increase. I’ll gladly take $18 over a $250 increase.

I am with you brother - I want a tax break. It is kind of insane that for every incremental dollar that I earn, I lose close to 50% of it. I understand that more fortunate should be paying more but the top tax rates are ridiculous.

@sredni said in Steps to take in 2017 for the upcoming tax changes:

Since most people will see a drop in their highest marginal rate in 2018, how does this strategy sound:
You overpay your 2017 state taxes by a huge amount, say $10,000. You deduct this from your 2017 federal tax bill at the high tax rate that you are currently paying.
In 3 months, you get that money back in your state refund. When you file your 2018 return, this will be taxable income. But you pay the lower 2018 rate at that time.

Do you see this working?

Yes - it will work. But when I have prepaid my taxes in the past, I remember some IRS wording about not trying to overpay too much to game the system. So can’t tell if they will go after enforcing what they said in their doc.

@sredni said in Steps to take in 2017 for the upcoming tax changes:

Even if the 1098 shows the extra mortgage payment in the 2017 year, what is the benefit? Isn’t mortgage interest still deductible in 2018?
Can someone explain where the saving comes from?

Are people trying to get the deduction this year because their tax rate will be lower next year?

In my case, with the increased 24K standard exemption and 10K cap on SALT, I will be forced to take the standard deduction. So by moving it to this year, I get some benefit versus none next year.

Chris> But the fact that I have to consider those kind of plays means, to me, that our system is too complicated.

But it was always complicated and your choices are bend over and … or know the rules and instead of bending over, bend the rules in your favor. I have been doing that for years - nothing new. For example, I paid my son’t college Tutition in Dec instead of Jan to beat certain tax rules since it got counted in the December year. Tax loss selling is what? Exactly that. In fact, I am going to be taking advantage of another very obscure rule on Dec 29. I will be closing out my “covered call positions” where the stock is much higher. The stock position that I sell will result in gain this year. The option position since short will close next year. So gains this year, deduct from state taxes. Loss next year will wipe out gains next year - so again lowering my state tax next year. 4.5% benefit to me by being able to deduct state taxes from federal this year. Just due to timing the thing to the exact date.

I understand your comment about periodic charity thing but why be rigid. It is not much different from manufactured spending - you are going to give to charity and you might as well get a good benefit out of it.

It’s common to see many out there advising paying your January payment early (next week) to realize the extra interest deduction in 2017.

People don’t know what the hell they are doing. Only the January payment will count towards the interest for 2017. The January payment represents interest for Dec and hence it is legit to do that. At the end of the day, you don’t control generating the “mortgage interest statement” - your bank does.

@cpaynter said in How will the new tax bill affect your taxes?:

@redmed said in How will the new tax bill affect your taxes?:

@cpaynter said in How will the new tax bill affect your taxes?:

@principalmember said in How will the new tax bill affect your taxes?:

There has been a lot of crying about the property tax/state income taxes being limited to 10K (effectively can’t even do it since you need a big mortgage to overcome the 24K std deduction). But personally, for the high earners, not being able to deduct state income tax may be wash since the new rates are lower at the higher end.

Sure, for the high earners it’s great. But for those of us <$160k AGI, we’re seeing our taxes increased. I thought this was supposed to be a tax break for the middle class? What’s middle class now, a minimum of $200k?

Waa Waa Waa The rich get more benefit from the tax break! The rich pay more taxes, so of course they are going to benefit more from any tax break. Instead have every citizen pay the same amount regardless of income. That would the most fair.

Absolutely, I agree. Despite what demagogues would have you believe, the rich really do pay the majority of income taxes. So it stands to reason that with any tax cut, the rich will benefit more because they are paying more. And I’m perfectly comfortable with that.

So if a bill were to give a tax break to the higher earners and leave the rest of us out, I’d be fine with that. But when the higher earners are getting a tax break, and many of us in the lower ranges are getting a tax increase, I’m sorry, that sucks.

What really sticks in my craw is that this is being billed as a “tax cut” and a “tax simplification” when for me in the middle it is anything but.

And it also irks me that the bill in its earlier incarnation truly did provide tax cuts across the board and true simplification, significantly reducing the number of brackets even as it did away with the state income tax deduction. Then at the last moment, they screwed it up, returning to a dizzying number of brackets and putting in place the idiotic $10k SALT limitation, which is a mess.

I’d be thrilled with a tax system that was more flat, as you suggested. If not a flat $ amount, then at least a flat rate. But IMHO, this bill brings us further away from flatness.

What we ended up with was:
Tax cut = FAIL
Tax simplification = FAIL

Chris.

As far as I concerned, it is not a fail on “simplification”. Whether they have 10 brackets or 50 brackets, computers can calculate that in less than a second. But they have eliminated the AMT for most people and that is nice - you don’t have to compute taxes using a parallel universe. Also by raising standard deduction and limiting deductions, they will force a lot more people into standard deduction. At least I won’t be fumbling and looking for my property tax statements, charitable contribution receipts and so on.

My math wasn’t far off since in your 44K, you are not limiting SALT to 10K (which I did).

But here is a brilliant idea that will save you taxes. Feel free to send some of the savings my way. What you do is that you take the standard deduction one year and donate 48K the following year. And you can combine for 3 years too instead of every 2 years. In fact, you have until Dec 31 of this year to write your checks for 24K for the next year and take it as a deduction under the existing rules.

BTW - the US govt has very reasonable executive pay - I get paid as much as Trump and in some years, even more and his decisions affect the whole country. I get RSU’s and ability to buy stock at discounted price and he gets none of that. [His big advantage is free housing/food/transportation].