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2017 Tax Reform Bill

Tax Reform is now moving through Congress and has passed the House of Representatives.  The most likely effective date for the changes will be January 1, 2018 with a couple of exceptions.  The main one involves the proposal allowing firms to fully expense purchases of depreciable assets other than buildings for the next five years.  This would apply only to acquisitions made after September 27, 2017.
                     
The tax rates for capital gains and dividends should remain the same, i.e., 15 % maximum rate for most individuals.  Four listed income tax brackets have been proposed:  12%, 25%, 35% and 39% for individuals.  That could well be subject to change in the final version.  A major benefit is that the standard deduction would nearly double to $24,000 for married filers and $12,000 for single individuals.  An increase in the child tax credit for those under 17 on the last day of the tax year is in the works also.

529 plans for post secondary education would be extended to cover tuition payments for elementary and secondary education as well as apprentice programs.  On the other hand, write off for state and local income and sales taxes would be eliminated.  A far more contentious issue will be placing a limit on the property tax deduction for personal residences.

The maximum mortgage interest deduction appears likely to be reduced from $1 million currently applicable to the sum of mortgages on first and second homes.  Less contentious items like personal casualty losses, gambling losses, tax preparation fees, and moving expenses are likely to go away.  Medical costs which affect seniors and the chronically ill would be more difficult to eliminate.

Keep in mind that any bill passed by the House is subject to change in the Senate and ultimately a Presidential veto.

 

Tennessee Residents

While the state has not had an income tax on a person’s earned income, it has taxed certain interest and dividends received.  There are a number of exceptions, e.g., bank and credit union interest.  The Hall Tax on unearned income is being phased out and will be eliminated by 2022.  The schedule for the phase out is as follows for the tax rate.

  • 4% of taxable income for tax years beginning January 1, 2017
  • 3% of taxable income for tax years beginning January 1, 2018
  • 2% of taxable income for tax years beginning January 1, 2019
  • 1% of taxable income for tax years beginning January 1, 2020
  • Repeal beginning January 1, 2021

                                    
Any person 65 years of age or older having a total annual income (including social security) of less than $37,000 single and $68,000 joint filing are exempt from the Hall Tax.  The tax does not apply to the first $1,250 of income reported on each individual return or the first $2,500 on a joint return.  A legally blind person is exempt from the Hall Tax upon furnishing a written statement from their physician certifying their blindness.  When only one spouse on a joint filing is sighted, then only the income of that person is reportable on Schedule A.

 

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Important information for those considering taking Social Security before normal retirement age

The following is the current normal retirement age (NRA) as specified by the Social Security Administration (SSA):

Year of birth
NRA
1938 65 and 2 months
1939 65 and 4 months
1940 65 and 6 months
1941 65 and 8 months
1942 65 and 10 months
1943 - 1954 66
1955 66 and 2 months
1956 66 and 4 months
1957 66 and 6 months
1958 66 and 8 months
1959 66 and 10 months
1960 and later 67

If you elect to take social security benefits before your NRA, then your benefits are reduced $1 for every $2 you earn in excess of the earning limit. For 2017, the earnings limit remains $16,920 and $17,040 in 2018.

In the year you reach NRA, the earning limit applies to the months prior to the month in which you reach NRA. Then your benefits are reduced $1 for every $3 you earn in excess of the earning limit. This limit is also more generous. For 2017, the annual earnings limit increases to $44,880 and $45,360 in 2018.

Once a person reaches NRA, there is no reduction in benefits for earnings.

The reduction identified above relates to a direct reduction in amounts of social security a person receives. Social security benefits may still be taxed up to 85% when income received by the taxpayer(s) exceeds $25,000 (single) and $32,000 (married filing jointly).

Should you take reduced benefits before your normal retirement age? That depends on several factors. To make an easy determination, please go to the following page.

socialsecurity.gov/estimator

The system will display what you would reap based on your current earnings, depending on when you choose to retire. Further, you can find out how your social security payments might change if your earnings increase or decrease in the future. While the SSA has long had an estimator on its website, it recently became automatically linked to data about each individual. Previously, you had to input earnings information on your own. It now takes the information that you receive on the paper statement each year and makes it interactive.

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