Just for fun, I created a quick spreadsheet to calculate individual taxes based on the new tax law – at least the parts that make sense this morning. I will be adding to it as I go along. The calculations are based upon the Senate version.
It is simpler, I will give congress that. I put the spreadsheet together in about 30 minutes from scratch. Here is something to think about though, $12,000 is a lot of property tax and mortgage interest. And $24,000 is a heck of a hurdle for a married couple.
If your current mortgage value is under $200,000 and your property tax is less than $3,500 you will probably not get above $12,000 for the standard deduction if you are single. If you are married you will need a mortgage above $450,000 to get close to the $24,000 limit.
A single person making $50,000 will have a 2018 tax liability of $4,370 under the Senate plan. A single person making this amount will likely not have a mortgage above $200,000, and will therefore take the standard deduction of $12,000.
A married couple making $72,000 combined and with one child under 16 will owe taxes of $5,379, before the child tax credit. If the tax credit is $2,000, their net tax is $3,379.
Since it is unlikely that this couple would have a mortgage above $450,000, they would also take the standard deduction.
A married couple with no children who makes $150,000 with a $450,000 mortgage will likely itemize as their property tax and interest will be above $24,000. Their tax would be $17,430. If they didn’t have a mortgage, their tax would be about $17,700.
The single person making $50,000 has an effective tax rate of 11.5%
The married couple making $150,000 with a mortgage has an effective tax rate of 14%
The married couple making $150,000 without a mortgage has an effective tax rate of 14.4%
A married couple making $150,000 with a mortgage and 2 children has an effective tax rate of 10.8%
Obviously, it is what is missing that matters. Many of our clients have employment related expenses that will no longer be allowed as a miscellaneous itemized deduction. And, from what I have read, medical expenses will no longer be taken into consideration. We have several families with an aged parent in a care facility because they cannot be left alone. This is $80,000 that is no longer a deduction and those gains, interest and dividends, pensions and social security will end up with a tax hit of about $10,000 or an effective tax rate of 14.6%.
I will spend some time looking at the corporate side the rest of the day and tomorrow and have some thoughts on that by the end of the weekend.
Enjoy your Saturday.