Last Week's Highlight: Not the Firing of Comey
While the Comey firing likely tops last week's "highlights" list for many out there, how about we not jump into the swirling vortex of fact, fiction, and utter nonsense that's being spewed from both parties and the majority of the media. They can have their fun; but that doesn't mean we have to get sucked into it. Just ask yourself what possible impact either the firing or the responses to it have on your own life, and you'll see why "enough is enough." Rather, we can take note of something that is with a high degree of certainty going to effect each and every one of us. And that would be tax reform.
Last week, we learned a bit more about the Trump administration's proposed changes to existing tax law. To get some handle on what's going on, today we'll focus on the possible impact on personal tax deductions by looking at what might happen to the medical expense deduction.
Let's first note that there's nothing definitive that we can wrap our arms around. We're just noting what information has been put out there by various sources. Based on that information, it looks like the medical tax deduction will either be expanded or - get this - entirely eliminated. (See what I mean about "nothing definitive.")
The expansion proposal would lower the 10% "threshold" to 5.8%. For those of you who've never been in the position of taking advantage of this deduction, what this "threshold" refers to is a percent of AGI (adjusted gross income). To be specific, if you look at the line on your 1040 tax return that shows your AGI, and take 10% of that, you come up with a number. For example, if your AGI is $70,000, 10% of that would be $7,000. The threshold means that you need unreimbursed (by insurance) medical expenses that exceed $7,000 before you can deduct anything. And that deduction only applies to the amount that exceeds $7,000. Example: Your expenses total $10,000. Subtracting the $7,000 (threshold) from the $10,000 yields $3,000. You get to deduct only the $3,000.
As for the elimination, it means that you will not be able to deduct any medical expenses anymore. The logic behind that has to do with the idea that, in general, personal deductions should be reduced or eliminated because they benefit mostly "rich" people. Of course, there are deductions that benefit those who aren't necessarily "rich." For example, the deduction of state taxes, real estate taxes, and mortgage interest. These don't benefit only the "rich." For those of us who aren't rich and who would lose existing personal deductions, there's a proposal that would increase the "Standard Deduction" to make up for any potential disadvantage you might experience by losing personal deductions.
Now, if any of this isn't crystal clear, join the club. And that's really the crux of the proposed tax reform. Will it actually simplify what is by any measure absurdly, even oppressively complicated tax rules. Most of us are completely inured to this, but, really, if you think about it for more than 10 seconds, you'll likely realize that there's no justification for this labyrinthine collection of rules.
While we'll have to follow the progress of tax reform (if it ever gets off the ground), we're skeptical that simplicity will ever be achieved. What would real simplicity look like? Perhaps something like this: a one page form that takes us all of 10 minutes (or less!) to fill out. Anything short of that will likely result in something that, even if slightly less complicated, will find us all spending hours collecting our tax documents, contacting our CPAs - or plugging the numbers into our personal tax software - and coming up with a return that exceeds, even for those of us with fairly simple situations, a return that - all forms included - can exceed 40, 50, 60 or more pages. That's truly perverse!
All we know for now is that perhaps some of us will pay less in tax; then again, perhaps not.
Last week, we learned a bit more about the Trump administration's proposed changes to existing tax law. To get some handle on what's going on, today we'll focus on the possible impact on personal tax deductions by looking at what might happen to the medical expense deduction.
Let's first note that there's nothing definitive that we can wrap our arms around. We're just noting what information has been put out there by various sources. Based on that information, it looks like the medical tax deduction will either be expanded or - get this - entirely eliminated. (See what I mean about "nothing definitive.")
The expansion proposal would lower the 10% "threshold" to 5.8%. For those of you who've never been in the position of taking advantage of this deduction, what this "threshold" refers to is a percent of AGI (adjusted gross income). To be specific, if you look at the line on your 1040 tax return that shows your AGI, and take 10% of that, you come up with a number. For example, if your AGI is $70,000, 10% of that would be $7,000. The threshold means that you need unreimbursed (by insurance) medical expenses that exceed $7,000 before you can deduct anything. And that deduction only applies to the amount that exceeds $7,000. Example: Your expenses total $10,000. Subtracting the $7,000 (threshold) from the $10,000 yields $3,000. You get to deduct only the $3,000.
As for the elimination, it means that you will not be able to deduct any medical expenses anymore. The logic behind that has to do with the idea that, in general, personal deductions should be reduced or eliminated because they benefit mostly "rich" people. Of course, there are deductions that benefit those who aren't necessarily "rich." For example, the deduction of state taxes, real estate taxes, and mortgage interest. These don't benefit only the "rich." For those of us who aren't rich and who would lose existing personal deductions, there's a proposal that would increase the "Standard Deduction" to make up for any potential disadvantage you might experience by losing personal deductions.
Now, if any of this isn't crystal clear, join the club. And that's really the crux of the proposed tax reform. Will it actually simplify what is by any measure absurdly, even oppressively complicated tax rules. Most of us are completely inured to this, but, really, if you think about it for more than 10 seconds, you'll likely realize that there's no justification for this labyrinthine collection of rules.
While we'll have to follow the progress of tax reform (if it ever gets off the ground), we're skeptical that simplicity will ever be achieved. What would real simplicity look like? Perhaps something like this: a one page form that takes us all of 10 minutes (or less!) to fill out. Anything short of that will likely result in something that, even if slightly less complicated, will find us all spending hours collecting our tax documents, contacting our CPAs - or plugging the numbers into our personal tax software - and coming up with a return that exceeds, even for those of us with fairly simple situations, a return that - all forms included - can exceed 40, 50, 60 or more pages. That's truly perverse!
All we know for now is that perhaps some of us will pay less in tax; then again, perhaps not.
Comments