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How is that Trump Income Tax Working Out?
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2019 Feb 16, 12:21pm 5,969 views 2 comments
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1
HeadSet
2019 Feb 16, 12:25pm
HeadSet
2019 Feb 16, 12:25pm
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?
And this worked even though you could not deduct California State Taxes over $10k?
2
SunnyvaleCA
2019 Feb 16, 12:27pm
HeadSet says
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
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
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.