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How is that Trump Income Tax Working Out?

By SunnyvaleCA follow SunnyvaleCA   2019 Feb 16, 12:21pm 1,781 views   2 comments   watch   nsfw   quote   share    


I know many high tech workers in silicon valley fear the 2018 "Trump Taxes." I wasn't so sure. "Trump Taxes" relaxes AMT (by not phasing out the AMT deduction as quickly), relaxes the tax rate schedule, and gives a more generous standard deduction. I suspected all along that the complaining at work is really just the standard "orange man bad" TDS.

I just finished up with TurboTax 2018 and then went and plugged the same numbers into TurboTax 2017. Under 2017 rules my $47k of itemized deductions (!!!) were completely eradicated by AMT, resulting in a higher federal tax under 2017 rules than when using 2018 rules. Thanks to the new $12k standard deduction and slightly lower tax rates, I'm paying less while leaving behind enormous itemized deductions. For 2018 I didn't have to deal with itemizing or AMT calculation.
1   HeadSet   ignore (2)   2019 Feb 16, 12:25pm     ↓ dislike (0)   quote   flag      

higher federal tax under 2017 rules than when using 2018 rules

And this worked even though you could not deduct California State Taxes over $10k?
2   SunnyvaleCA   ignore (1)   2019 Feb 16, 12:27pm     ↓ dislike (0)   quote   flag      

HeadSet says
higher federal tax under 2017 rules than when using 2018 rules

And this worked even though you could not deduct California State Taxes over $10k?

Yes, AMT is brutal. You can't deduct state and local taxes against AMT. AMT asymptotically approaches 28% tax on 100% of your income.

Here's a website that compares 2017 to 2018 AMT. https://www.savingtoinvest.com/alternative-minimum-tax-amt-and-exemption-amounts/
Here's a website with a nifty calculator (but doesn't really have the rules). https://www.irstaxapp.com/alternative-minimum-tax-calculator-for-2017-2018/

For a $300k income (enough to afford a shack in the silicon valley), AMT for a single person would break down as follows...

In 2017, AMT has a $54,300 exemption (sort of like the "standard deduction" in normal taxes). However, that exemption is phased out by $0.25 for every $1 you make in excess of $120,700. So you lose $44,825 of that exemption; exemption is now $9475. So your income subject to AMT tax is $290,525. The first $187,800 is subject to 26% AMT, which comes to $48,828. The rest is subject to 28%, which comes to $28,763. For total 2017 AMT of $77,591. That's just shy of 26% tax total on everything; as you earn more, the exemption reaches $0 and all the additional is taxed at 28% — that's how you asymptotically approach 28% total.

In 2018, the exemption and phaseout limits were raised significantly... Exemption is $70,300 and the phaseout doesn't start until $500k. So, $229,700 will be subjected to AMT. The first $191,500 is subject to 26% AMT, which comes to $49,790. The rest is subject to 28%, which comes to $10,696. For total 2018 AMT of $60,486.

Using https://www.taxact.com/tools/tax-bracket-calculator , that same person would have, let's say, $50k in itemized deductions in 2017 or $12k in standard deduction in 2018 so 2017 regular tax on $250k would be $65,899; 2018 regular tax on $288k would be $76,489.

Whenever AMT exceeds regular tax, you pay AMT. Otherwise you pay regular tax. So....
in 2017 you pay $77,591 AMT
in 2018 you pay $76,489 regular tax and don't have to do the paperwork to itemize or calculate AMT

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