Trump’s Tax Plan is Now Law. Find Out What it Means to You

John Ross and Lisa Shoalmire Radio , , , , , , , , , , , ,
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John and Lisa talk about the Trump Tax Plan and how it could affect you. Discussion includes tax breaks, medical deductions, taxable income and more. Prevent yourself from becoming a burden on your family.

John

We're headed live.

Recording

...related to the subjects discussed in this program. Welcome to "Aging Insight," the only show dedicated to your elder care concerns and your resource for learning about how to...

John

This would be a good show today, hope you enjoy it.

Recording

...financial and legal needs. This is a live call-in program featuring John Ross and Lisa Shoalmire, elder law attorneys...

John

We'll tell you about the tax stuff.

Recording

...and senior advocates for the...

John

There's nothing more exciting than that.

Lisa

That's right, Christmas is next.

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...dedicated to helping you navigate the challenges...

Lisa

But it is kind of a Christmas present.

Recording

...so call in and ask your questions. The number is 903-793-1071. Now, here are your hosts...

John

Here we go.

Recording

...John Ross and Lisa Shoalmire.

John

Well, welcome to "Aging Insight," everybody. This is your host, John Ross, here live in the studio with my co-host, Lisa Shoalmire.

Lisa

Well, hello, everyone.

John

Yeah. We're here, it is...

Lisa

Yeah. While we're doing this live, it is just before Christmas Eve.

John

It is.

Lisa

It's the eve of Christmas Eve.

John

Yes, it's Christmas Eve eve.

Lisa

Yes, eve squared.

John

Eve, would that be...

Lisa

No, that wouldn't work. That would be four days before.

John

That would be four days. Wow. We just delved down into geek-ness there. I appreciate you all not tuning us out just yet.

Lisa

Right-click.

John

Yeah, we just scrolled to another channel. You're listening to "Aging Insight," which, of course, is your number one place to get information about what's going on in the legal world as it relates to your health, your housing, your financial situation out there so that, ultimately, you can prepare for retirement, navigate through retirement, protect or preserve your assets, stay independent, and create a legacy out there that will last long after you're gone.

Lisa

That's right. And we are here on the radio on Saturdays because we have sponsors who pay good money for some air time for us to be on here so we can run our mouths and geek out a little bit. But we wanna give a special thanks to those sponsors including Edgewood Manor, The Barnett Agency, Dierkson Memorial Hospice, Cowhorn Creek Estates, Christus St. Michaels, Texarkana Funeral Home, Red River Federal Credit Union, Heritage Plaza, Reunion Plaza Nursing and Rehabs, and also the Twin City Rehab.

John

That's right.

John

Yeah, thanks to all of them, and thanks to everybody that's listening to the show. You know, we do this most of the time, we are live here in the studio.

Lisa

Thanks to them.

Lisa

Most of the time.

John

Even on Christmas Eve eve.

Lisa

Yes.

John

But, you know, not only do we do it live on the radio, we're also live on Facebook.

Lisa

That's right. And we've been told by our teenagers that Facebook is for all us old people. And by old people, they mean anyone over 30. So, if you do not have a Facebook account and you're listening and you say, "Oh, I don't do all that stuff." Well, you know, just get you a Facebook account. That's where all of us mature people, you know, have our social media presence. We're not Snapchatting, we're not Instagramming. Just get you a Facebook account, if for nothing else, so you can tune in on Saturdays and you can go the Ross and Shoalmire Facebook page and watch us make radio live. And it's fun.

Lisa

So, if you're on the Facebook application, you can comment or ask questions in the space there on our page, and we will be able to see them during the show. And, of course, during the show, you can call in if you're one of our radio listeners. And you can call in at 903-793-1071. And, you know, John, I bet there's a lot of folks out there, they might be out in their car zooming around town, finishing up some grocery shopping, Christmas shopping.

John

Yeah, maybe a little last-minute Christmas shopping. I always find it interesting that the gender demographics...

Lisa

Yes, the Christmas Eve eve, the shoppers are male.

John

Yes. I also enjoy just wandering through the mall the day before Valentines. Nothing but dudes, the whole place. Pretty funny. So, yeah. The gender, so maybe some of the men out there, running around today listening to a little "Aging Insight" while they pick some of their last-minute gifts.

Lisa

And when I left the house today to come up to the radio station so we can do this live, I did pass our postal carrier. And I know that she's been...hopefully, she's listening. She tells that she does. So maybe she's out working, delivering those final cards and packages and listening to "Aging Insight."

John

Well, and Merry Christmas, and I thank you to all of the mail delivery folks out there, whether, you know, U.S. Postal Service, United Parcel Service, FedEx, all of those folks busting their tails last couple of weeks.

Lisa

Yes, definitely.

John

There had to have been about 700 pounds of boxes that were delivered to our office this week as all of the staff that have a tendency to use our office as their mail delivery for things.

Lisa

So, yeah. Every day, the UPS have got sometimes a couple of stops a day.

John

Yes. Well, you know, lots of stuff going on out there in the world, and some of it might just impact you all.

Lisa

That's right. So, you know, Christmas time, you know, the teachers and all, they just can't wait to look forward to Christmas break.

John

That's right.

Lisa

While people like nurses and our EMT folks and all of our medical people, you know, they got to work. You know, sickness doesn't stop because it's Christmas.

John

That's right, they're gonna be working.

Lisa

But, you know, another big group that usually gets a very nice, long vacation during the Christmas season, Christmas holiday, is typically our congress.

John

Yes, the politicians out there.

Lisa

Yeah, usually, and I could tell you from the legal side of things, I know essentially the courthouses, they pretty much shut down December 15th. I mean, yeah, the offices are open, but there's nothing decided. There's no hearings. There's nothing going on in the courthouses from essentially December 15th 'til about January 3rd. But this year, Congress did not get to bail out of Washington D.C. in early December like they usually do for a month-long holiday.

John

No, they had some business up there.

Lisa

Yeah, they had some business. And essentially, what happened was...I don't know all the players exactly but, you know,... and Speaker Paul Ryan, they extended the session. So, our politicians, they had to stay at work, John. This is terrible. Did somebody start a Go Fund Me page for these people? They had to work.

John

Yes. I feel terribly bad. They're like the little Whos in Whoville after the Grinch stole all their presents.

Lisa

Yes, they're all sad. But they had to work into their normal Christmas break, Christmas vacation. And they had to work because there was this little bill that was making its way through the house of representatives and into the Senate and through the reconciliation committee, and that was the Trump Tax Bill.

Lisa

Lisa

Lisa

...divide and discerned from this tax bill.

John

Yes, that's right. And, you know, some of the stuff... You know, again, we're a show kind of dedicated to people who are approaching retirement, non-through retirement. But, you know, a tax bill like this is gonna have some very wide effects. Some of the things would not apply to that demographic.

Lisa

Yeah. Some of the things don't apply to near-retirees or retirees, but a lot of it does. And so let's jump in and talk about some tax law, John. Because I'm sure that everybody is staying awake to listen to tax...

John

Oh, yeah. Nothing everybody wants to learn more about than tax law.

Lisa

But, you know, we have to go back and... You know, I don't know who said it, Mark Twain, you know, Will Rogers, don't know. But, you know, nothing is for sure but death and taxes.

John

That's right.

Lisa

So, you know, we're a program on aging insight, you know, so today let's talk about some taxes.

John

Yes. So, the bill has passed, signed by President Trump, when, yesterday, last night maybe?

Lisa

Yes, he signed it yesterday or the day before, and then he tweeted about it.

John

And then he tweeted about it. He has not tweeted today, apparently, part of the news that we just heard. But it has passed. And, you know, probably the biggest thing that people were talking about initially was the tax brackets. Lots of talk about tax brackets.

Lisa

Right. And so, you know, tax brackets, you know, one way to really look at this law is to kinda look at the old law, compare it to the new law. And so, you know, with tax brackets, the lowest tax bracket started at 10%, and it remains the same in the new law. And the highest tax bracket under the new law is 37% when it used to be 39.6%. I never understood the.6. I guess they just didn't want to say 40%. But, whatever, that was the old law.

John

Right.

Lisa

And, of course, you know, John, when it comes right down to it, you know, a lot of this, retirees and seniors that I work with, their main source of income is their Social Security. And I had a lot of seniors that don't have to pay any tax at all, not even the 10%.

John

Right, well, you know, it's all security in and of itself. Just Social Security alone is non-taxable income, generally speaking. It's just that you do, you get some exceptions to that if you have other taxable income and that other taxable income throws you up over certain limits.

Lisa

Yeah, like pension or IRA distributions. But for most seniors, the ones that do pay tax, you know, 10% is still the starting tax rate. But the next bracket, John, is 12%. So, you have to make...you have to have taxable income of more than $19,000 as married following jointly to even hit that 12%. And then it goes up, it jumps from 12% to 22%. But those percentages, the new percentages, John, 10, 12...

Lisa

Lisa

Lisa

You well know that what the government gives, the government takes away because you end up with a higher Medicare premium or something like that. But that's for another show, I guess.

John

Yeah, that's right.

Lisa

Let's stick with the taxes today. Well, John, I guess, hey, why don't we take a break and then we'll come back and...

John

Yeah, because, you know, the last time I did briefly talk about this in one other show, and there were a few things that I was worried that were gonna be in the final bill that are not. And so we do have some good stuff there. Yeah, like you said, let's take a break. And when we come back, we'll keep talking about this. Stick around.

Recording

903-793-1071 to ask your questions.

John

All right. Of course, we're still live on Facebook here so...

Lisa

Just getting my tax...

John

Yes, and I apologize for the people that are watching me, if I, you know, wipe my nose or whatever. The weather is not cooperating with my allergies.

Lisa

Hey, but at least it's allergies and not the flu.

John

That's right. And so I feel great, but the congestion is killing me.

Lisa

Well, John, you were talking about on the show that Ted Cruz had said that, you know, the tax code has more words than the Bible. Well, they were talking about the IRS is gonna have to rewrite lots of regulations. So, the new tax bill is going to fuel the industry of writing proposed regulations and getting those through treasury. So, you know, there'll be more words. We're not done yet.

John

Yeah. No, that's right. And of course, we love our folks that are watching on Facebook and, you know, the ones that like to comment. So, hi, greetings from Reno. Well, greetings from Texarkana. I think...I don't know what the weather is like in Reno, but here, it's cold.

Lisa

Yes. Well, and greetings from Texarkana, the home of the 4A State Football Champions for the 2017 year.

John

Yeah. I went to the Hawks game in Dallas yesterday, and it was a great game. It was a lot of fun to watch. I really enjoyed that and I got it kicked out that. I'm very excited for the team. You know, they put the...they had the big screens up there, and right there at the end of the game, as the players ran out onto the field, they focused in on the coach who was just bawling.

Lisa

Oh, that's so sweet.

John

Yeah, it's good stuff. All right. We got about 25 seconds before we are back live. So you Facebook Live folks, you folks live, you all keep watching and we're gonna keep talking about the tax plan here. All right, here we go.

Recording

...have a question, call 903-793-1071. Now, back to "Aging Insight" with John and Lisa.

Lisa

Welcome back, everyone to "Aging Insight." This is Lisa Shoalmire. I'm here with John Ross. And today, we're talking about the incredibly exciting, titillating topic of taxes.

John

Yay, taxes. And you're getting that straight from a couple of pure tax nerds. You know, most of you all realize that...I think most of you all realize that Lisa and I are elder law attorneys. What you might not realize is that, you know, in my case, I have an undergraduate degree in accounting with a focus on taxes. And Lisa, who wants to try to outdo everybody then....

Lisa

That's right.

John

...got herself a masters of taxation.

Lisa

That's right, I'm a master of tax.

John

That's right. And got that concurrently with her law degree. So, we do know a little something about taxes when it comes out there. Now, when I talked about the tax plan a while back, I don't remember if it was on the radio or if it's one of my Facebook Live posts or what. But I pointed out that one of the proposed bills was going to remove the medical expense deduction altogether.

Lisa

Right, just completely remove it. And for a lot of our older taxpayers, you know, the reality is that as we get older, we need more medical services.

John

Right. And particularly what we see is, you know, in a long-term care context, if you are privately paying for, say nursing home or assisted living-type care, you know, you can be upwards of $40,000, $50,000, $60,000 or more a year out of pocket for that type of cost. All of which is, generally speaking, going to be a medical expense deduction.

Lisa

Well, you know, and so under previous law, there was...you could deduct those medical expenses. You could itemize your deductions on your taxes and you could deduct those medical expenses after those medical expenses exceeded 10% of your adjusted growth income. So, you know, so basically, if your adjusted growth income was $50,000 a year and you're a single person, you were gonna have to pay some tax. Well, then, you know, the first $5,000 of your medical expenses you couldn't deduct because that equaled 10% of your adjusted growth income. But anything over $5,000, you could list as an itemized deduction under the old law. And, John, I know your concern, and there was a lot of talk about this in the elder law community because it impacts our clients so much, was that they were gonna...one of the drafts of the tax bills said no medical deduction at all.

John

Right. And this was particularly troubling for... Let me just give you the scenario. Let's say you're privately paying for that long-term care and you're paying for that out of your savings, generally, much of which may be or probably is in some form of IRA or 401K, some pre-tax money out there.

Lisa

Yeah, that you have to pay tax on when you draw it out to pay your bill.

John

That's right. So, at the same time that you're increasing your taxable income, but you're having to do that in order to pay for these very, very large deductions which ordinarily would be a medical expense. So, taking away the medical expense was almost a double whammy for that group of folks because they're having to pull out taxable income because of the medical expense and yet, they're spending all of that money on these exorbitant long-term care costs. And so it's almost a double hit. Not only do you have the medical cost but you're having the tax liability. So, in this case, the National Academy of Elder Law Attorneys...

Lisa

Yes, which we are members of.

John

...our very own organization actually stepped in and lobbied very, very hard to make sure that the medical expense deduction was preserved.

Lisa

And was it preserved, John?

John

It was.

John

Yay!

Lisa

Yay!

Lisa

And we even have a bonus, John. Now, the floor, instead of 10%, is 7.5%. So, not only did it get preserved, it got better.

John

That's exactly right. Now, this will have some play with some of the other provisions, the increase of the standard deduction and some other things. We'll talk about that when we get back from the news break here. So, it's good news ... kept it. It may not have quite the impact for everybody that it would have had everything else stayed the same. So, anyway, we're gonna take our news break and we'll be back here in just a second.

John

All right, yeah. So, you know, Lisa and I are members of the National Academy of Elder Law Attorneys. And there's even a Texas chapter of that, the Texas Chapter of the National Academy of Elder Law Attorneys. And behind the scenes, we're often out there doing a lot of things to try to help preserve what we see out there in the legal world that benefits our people, the folks that we're out there trying to help. I know, Lisa, you and I even went to Washington D.C. at one point.

Lisa

Yeah, went to a briefing on elder law issues, and that had to do with the self-settled special needs trust, which is a whole other topic. But shortly after that trip with a group of colleagues, Congress finally passed some legislation that we had been lobbying for that benefited people with disabilities to, you know, retain some of their own assets to care for themselves.

John

Yeah, and being able to protect themselves and... Yeah, your very own, Lisa Shoalmire, sitting there in the congressional committee lobbying for these things on behalf of disabled people all over the United States. So, you know, we are heavily invested in this stuff and how this stuff relates to you all. And like I said, of all of the things in the tax code, at least as it's stuff as it relates directly to our clients, the medical expense deduction was one of the ones that really concerned me. I had several folks just in the last month that were looking at these long-term care expenses and, you know, maybe somebody's getting ready to transition into that long-term care situation.

John

And I was saying, well, normally, my advice would be wait 'til the first of the year and then, you know, once you've got them moved in, the first of the year has come, then start drawing money out of that IRA because you're essentially gonna get it, you know, virtually tax-free because you're creating taxable income but you're paying it out of...

Lisa

Creating a deductible expense.

John

Right. But I was having to tell them, "But..."

John

"I don't know yet. It's possible that that's not gonna happen." But it did. We were able to keep the medical expense deduction. So that is good stuff out there.

Lisa

I don't know.

Lisa

Well, and a lot of people, a lot of seniors, as they get into retirement, you know, they end up in a tax bracket where they have to pay little or no tax. And so they don't even think about it. But then as they continue to age on and they do incur expensive medical costs which are out of pocket, and of course, that's the key, it has to be out of pocket, but a lot of our seniors have gotten into the groove of not filing tax returns because they haven't needed to. But they forget to re-evaluate the situation, you know, or their sons and daughters don't know they need to re-evaluate the situation for mom and dad when they do need long-term care.

John

Yeah. We started talking about "Well, yeah, this would be a good tax savings." They're like, "Well, they don't file taxes anyway." Like, "Yeah, but they're about to increase their taxable income with all these deductions." So, all right, so we're about to go back live on the radio. Facebook Live folks, I appreciate you all sticking around with us. I hope you're enjoying the show thus far. We've got about five seconds to go. So here we go.

Recording

Have a question? Phone 903-793-1071. Now, back to "Aging Insight" with John and Lisa.

John

Well, welcome back to "Aging Insight," everybody. This is your host, John Ross, here live in the studio on this Christmas Eve eve with Lisa Shoalmire, my co-host, as always.

Lisa

Well, not always.

John

Well, most of the time.

Lisa

Most of the time.

John

Most of the time, anyway. And of course, we are live. You can call in. The phone number is 903-793-1071, 903-793-1071. Of course, for our Facebook Live, because we're also broadcasting this live, if you wanna see how radio looks, you can get on Facebook, you can check that out. You can put some comments in there, you can like it, you can share it, all of the good stuff that you can do out there. And you know, the thing is, is if you missed something, maybe you're listening on the radio but you're running in and out of stores picking up those last-minute Christmas gifts, you can always go check out the Ross and Shoalmire Facebook page later. Because this broadcast will be saved on there, and you can go and check it out and you can get all the little details that you were looking for. So, anyway, today we are talking about the Trump Tax Plan.

Lisa

The Trump Tax Plan. So, we hit the...

Lisa

Lisa

Lisa

But, John, there's, you know, I tell all my clients, "When you pull a string on one side, it kinda pulls something else on the other side."

John

This is correct.

Lisa

And so one of the things that the Trump Tax Plan is doing is it is changing the standard deduction and personal exemption. And, you know, under the old law, you know, we all walk around with a personal exemption of, oh, 4,000 bucks or something.

John

Yeah, about 4,100.

Lisa

Okay. But under the new tax law, that's gone.

John

That's right.

Lisa

No personal exemption whatsoever, a big zero.

John

Yup, a big goose egg there.

Lisa

But what they did was they substantially...the new tax bill substantially increases the standard deduction. And remember, John, you know, you can either itemize your deductions or you could say, "Government, I didn't keep up with all my receipts, and I'm just gonna keep take a standard deduction." So it's one or the other.

John

Right.

Lisa

All right. So, when we were talking a moment ago about the medical expense deduction, you can only take that if you itemize and you do not use the standard deduction.

John

Right.

Lisa

Okay. So, what the tax bill has done is really increase the standard deduction to a point where many folks are just not gonna have enough itemized expenses to itemize. So, the present, the new law, the standard deduction for a single person is going to be $12,000.

John

That's right.

Lisa

And under the old law, it was $6,500.

John

Right. And, of course, for a married filing jointly, you know, it went up to $24,000. So that's a lot of out-of-pocket household deductible...household type expenses, like medical expenses, property taxes, and things like that. That's a lot of those that you would have to accumulate before you ever even cross that threshold to where itemizing would be of any benefit whatsoever.

Lisa

Right. So, let's the example, John, if we have a single lady, she's a widowed lady. And, you know, she's getting her husband survivor pension. She's getting her Social Security. And maybe for a number of years, she hasn't even had to file a tax return.

John

Right.

Lisa

All right. And then she comes upon a year and she ends up...she needs memory care and she's admitted, and she becomes a resident of a memory care facility. And, of course, these facilities are pretty pricey.

John

Yes, they are.

Lisa

So, let's say over the course of the year, she pays $60,000 out of pocket for that memory care specialized care that she needs. Would she be better to itemize, or would she be better to take the standard deduction of $12,000?

John

Well, see, now, of course, you'd have to factor what her income is. And, you know, of the...what'd you say, $50,000 of deductible medical expenses, they're gonna take a little bit off of that. Seven percent of whatever her income is, they're gonna reduce the medical expenses by that amount. But that should still be a lot more than the $12,000 personal exemption amount.

John

So itemizing might be a good idea.

Lisa

Yeah.

Lisa

Yeah, for her, that would be a good idea. But if we change the situation and let's say that year she had fallen. She had gotten some rehab benefits from Medicare but not quite enough, and she decided to privately pay for additional rehab benefits. And let's say she paid $5,000 for private rehab. Well, now at that point, she can either take a $12,000 standard deduction or, you know, she could look at trying to itemize. But all she's got is $5,000 in medical expenses. You know, and in a case like that, she's better off taking the $12,000 standard deduction.

John

That's right.

Lisa

So, the standard deduction has increased a lot for many people, whether you're a working person and you're hoping to retire someday. You know, if you're a working person, married, like you said, John, your standard deduction is $24,000 now. You'd have to save a lot of receipts and have a lot of tax-deductible expenses before you would hit $24,000.

John

That's exactly right.

Lisa

And I think in some way, I guess I think the government was trying to simplify a little bit. Like, "Hey, let's give everybody a huge standard deduction. And that way, fewer people will benefit from itemizing." And frankly it's, you know, less paperwork.

John

Right, yeah. And, of course, some of the other things on this same thing is, you know, of course, one of the big things that a lot of people...one of the big expenses that a lot of people would have, particularly our Texas homeowners, would be maybe some property tax.

Lisa

Right, some property tax, which a lot of people, there's a line on your tax return under the old law where you could just deduct, you know, your property tax. And no matter how much state and local tax you had to pay, you could deduct it on your federal income tax return.

John

Right. So, particularly for those folks that lived in, you know, maybe in the northeast or...

Lisa

Yeah, Massachusetts, New Jersey, and then on the West Coast, California, where you have state and local taxes that are very high.

John

Yeah, you know, it seems like, you know, in some place like New York, you have a state tax, then you'll have a New York City tax.

Lisa

You have a county level tax.

John

Then you have a county tax. I think y'all have like a block tax.

Lisa

Yeah, a borough tax.

John

A borough tax, the street that you live on tax. And, yeah, so all of that now, for a married couple, all of your state and local taxes for 2018 and beyond will be limited to $10,000. That's the maximum then that you can take as a deduction for state and local taxes.

Lisa

So, if you live in a high-tax jurisdiction where you are paying more than $10,000 in state and local taxes, well, that's just an expense. You don't get a credit against...you know, you don't get a deduction on your federal income taxes anymore for any state and local taxes that you pay over $10,000. And John, this was a...I've heard people referred to this as the blue state model bomb.

John

Right.

Lisa

Because the commentator said that, you know, lots of blue states, "Are very high with their local taxes." And while the more red state models, who weren't as high in their local taxes, well, it acted like, you know, us, the red staters were kind of...I don't know, supplementing the blue staters because of the deduction that these blue staters were able to take for their voluminous local taxes.

John

Well, and the legislators in those blue states were often able to push through additional tax increases by making the argument that, "Look, it's basically a wash because we can increase our state-level taxes or our city-level taxes, but you'll get to deduct those against your federal taxes."

Lisa

So, it didn't cost you anything out of your pocket.

John

"So, you're all good. So, let us tax the teeth out of you." That, now with this limitation, that's a big change. But even for folks like in Texas, where property tax is a much more significant issue than...

Lisa

Yeah, since we don't have an income tax in Texas.

John

Right, since we don't have an income tax, it does make the point that, you know, this law goes into effect for next tax year, right? And here we are sitting with...

Lisa

A week.

John

Yeah, about seven, eight days left in this tax year. But, you know, one thing, if you are the kind of person that typically itemizes, you know, in Texas, you get your tax bill, what, around October?

Lisa

Right, yes.

John

But you can pay it anywhere from October all the way through to about February.

Lisa

Correct.

John

If you're a type of person that itemizes, you're gonna wanna pay that right now.

Lisa

Yes.

John

Pay next year's property taxes right now.

Lisa

So, yeah. Tip from "Aging Insight," tax tips.

John

Yes, "Aging Insight" tax tips, pay those right now because you're gonna...essentially, if you've already paid, you know, if you've already paid for this year, this year. And now you can pay for next year this year, then you're gonna be able to maximize the amount of state and local deductions before it's capped next year. So, good little piece of tax advice there. That one's free for you.

Lisa

That's right. Well, all right. Well, it's time for us to take our last break here on "Aging Insight" and we'll come back for our last segment. So, if you have any burning questions or comments, you better be thinking them up and give us a call after the break. We'll be right back.

John

All right, so yeah. A little helpful info there for some of those Texas residents. And, you know, there's actually...on that same note, because the tax brackets...we didn't mention this when we were talking about the tax brackets because tax brackets are going down.

Lisa

Yes.

John

And so if you...

Lisa

You get more benefit if you're in a higher tax bracket this year. Is that where you're going with that?

John

Right. So, where I was going, you know, if you could pay your property tax now so you're increasing those expenses. But if you have the ability to defer any income to next year, you know, if you were thinking about, for example, maybe you were gonna pull some money out of that IRA to, you know, for whatever reason, maybe you were gonna pull all that money out of the IRA because you're gonna make some home improvements or something. And for some reason, you're deciding to do all of that right around Christmas. I don't know why you would. But you're gonna really wanna push that into next year.

Lisa

Right. Because the tax brackets are...the percentages are lower. So, the tax multiplier will be lower next year.

John

That's right. So, rack up all the expenses you can right now while you've got a more favorable itemized deduction situation. And if you have the ability to defer income, defer that income on into next year, particularly our retirees. That's where you get your...you're pulling that money out of your IRA or 401K. Now, that being said, if you have to take a required minimum distribution because you're over 70 and a half, take it. You can't defer that next year. If you fail to take your required minimum distribution, you're gonna get hit with some...one of the most significant penalties there is in the tax code. So, go ahead and take your required minimum distribution.

Lisa

Yeah. But any discretionary distributions, you might wanna push to next year.

John

That's right, we're going to push that off.

Lisa

Push.

John

You know, we didn't really choreograph all of that before the show, so that's just spontaneous for you all right there. All right. So, we got about 15 seconds left on the commercial break for the radio listeners while you Facebook folks stick around. So, all right, we're about to be live.

Recording

Have a question? Phone 903-793-1071. Now, back to "Aging Insight" with John and Lisa.

Lisa

Well, all right everyone. Welcome back to our final segment on today's "Aging Insight." I'm Lisa Shoalmire here in the studio with John Ross. And today, we've been highlighting a couple of facets of the Trump Tax Plan, particularly those that may affect our demographic that we're always talking to, the near-retirees, retirees, and older folks. So, John, we've covered the tax bracket changes. We've covered the medical expense deduction changes. We've covered the standard deduction, personal exemption changes. So, where do we go next?

John

Well, you know, the other deduction that you can take pretty regular is the charitable deduction. And that is gonna change a little bit. The main thing here is kinda like your property taxes. It's more favorable this year to take a deduction because of the lower standard deduction threshold. Whereas, next year, you're gonna have this doubling of the standard deduction threshold. And so, if you were thinking about maybe making some charitable donations, particularly some larger ones, probably should do that before the first of the year. You're gonna get some more benefit out of it by doing it this year than you would doing it next year.

Lisa

Right. But once we go into next year, looks like that...you know, right now, charitable deductions, your deduction is capped at 50% of your adjusted gross income. But there is going to be an increase in that percentage up to 60%, but only, John, if you give certain current cash gifts.

John

Right.

Lisa

Yeah. So, there's a lot of ways to make charitable contributions to charities and ...

John

Taking your old clothes over to Goodwill, for example.

Lisa

Right.

John

But that's not a cash gift. And so that wouldn't apply to that, getting you up to that 60% of your adjusted gross income rate.

Lisa

Okay, John. So, one of the big questions I always get when I'm talking to someone about doing a will or an estate or somebody's coming into probate, they always ask about, "Are there gonna be any taxes on the assets that are received by the beneficiaries from an estate?"

John

That's right. And most people, I would say that the general understanding out there, incorrectly, is that your death creates a taxable event.

Lisa

And sadly, folks, you know, your death may cause a lot of things, but it does not cause a taxable event. You're not that important.

John

That's right. Yeah, so the first thing you got to understand is...

Lisa

Well, only a few people are that important...

John

Yes, that's exactly right. First of all, there's actually no tax on the receipt of an inheritance.

Lisa

Yeah, nobody who receives an inheritance ever, ever, ever pays any tax.

John

Well, never, ever, ever may be a...

Lisa

On the principal.

John

Things like IRAs that have never been taxed, those got to get taxed at some point. So, if it's pre-tax money that's being passed down...

Lisa

Okay, yeah, you'll pay tax.

John

Yeah. I actually got a question from a financial adviser. In fact, my podcast co-host, Devin Carol, asking whether or not a savings bond would get the step-up in bases at date of death so that the kids would get it essentially tax-free. And I was explaining to him, no, that's not an asset. That's untaxed interest income.

Lisa

Right, because that savings bond has grown and accumulated that interest income over time.

John

Right. So, untaxed income like that, that's a yes.

Lisa

Okay, I'll give you that.

John

But generally speaking out there, generally speaking, there's no tax on the receipt of an inheritance. The tax is levied at the estate, right? So, if you have some money, a lot of money, and you die, then before anybody ever gets it, that's when it gets taxed.

Lisa

Yeah, the estate pays the tax, not the beneficiaries. But, John, when you said a lot, you have to die with a lot of money...

Lisa

So, what's the tax bill do to that?

John

Yes.

John

So, if you manage to die between now and December 31st...

Lisa

Please don't.

John

Please don't. But if you did, and you had an estate valued at around $5.6 million, then every dollar over that would be subject to the estate tax.

Lisa

Right. So, in 2017, if you die with more than $5.6 million, you pay tax, but...

John

Right. So, if you're sitting out there and you're standing on top of your mountain of cash, and all that mountain totals up to around six million dollars, and you are single because this is per person, so it's twice as much for a married couple. But you're a single guy or gal and you're sitting on top of six million bucks, if you pass away in the next eight days, a part of that six million would be subject to tax. But if you can hold on for nine days...

Lisa

Right, if you can hold on for nine days, then so long as your pile of cash was less than $11.2 million, then no tax.

John

That's right. Now, this is not a complete repeal of the estate tax, but it does double the exemption from the 5.6 per person to 11.2 per person. And so, if you're a married couple sitting out there, we're now talking about, what is that, $22.4 million that you could pass down basically tax-free.

Lisa

So, I would say, John, for almost everybody we deal with, the death tax, estate tax is not an issue in 2017, and it certainly won't be an issue in 2018.

John

That's right. Now, let's say that you are sitting on top of a really, really big pile. Maybe you're sitting there and you're a single person and you're saying, "Well, you know what? The increase from 5.6 to 11.2, just not enough because I've got 50 million." Well, in that case, what you're gonna wanna do is not die for many years to come because the plan, I think, is that this will eventually repeal itself altogether.

Lisa

Yeah. The estate tax will eventually be repealed altogether. But you know how they have to phase things in and out so it will pass, you know, the scoring of the congressional budget office, blah, blah, blah? But, anyway, bottom line is, if you're sitting on a gigantic pile of assets, then they should call Ross and Shoalmire.

John

Yes, you have some planning to do.

Lisa

Because we need to do some planning, yes.

John

You know, but for most people, the estate tax really just does not affect you. It didn't affect you this year. The change in it is not going to affect you next year.

Lisa

This is a hot-button issue.

John

It is. And estate tax, this also applies to gift tax. And this is where, you know, you'll hear the folks come in and they'll say, "Well, I wanted to give some money away, but I heard I can only give, you know, $14,000 without having to pay a tax." Well, yeah, there's the annual exclusion of $14,000 but there's also a gift tax exemption that's equal to the estate tax exemption.

Lisa

So, basically, over a lifetime, in 2017, if you give away $5.6 million, even though that's more than the $14,000 annual exclusion, you still don't pay any tax.

John

Still no tax. And now that will also double to 11.2 per person.

Lisa

Okay, John, so one more thing I wanna bring up, and this probably doesn't affect many of our seniors, but it does affect some of our near retirees or folks that may be thinking of, "Retiring early but before they are Medicare age."

John

Right. You know, that group of folks that, you know, maybe you're done...you wanna retire at 55.

Lisa

Yeah, I'm all for it.

John

But that's 10 more years before you're gonna be Medicare eligible. So, health insurance is certainly something to think about.

Lisa

And, of course, under the Obamacare, or Affordable Care Act laws, you have, under the law, you have to carry health insurance on yourself that meets the standards of that law or else you get penalized and you have to pay more with your tax return. So, that is the personal mandate, the individual mandate that they call it. Well, yeah, it's been a very unpopular feature of the health care law. But although we can get into a wonky discussion about why we have to have that individual mandate to make the whole thing work, bottom line is it's very unpopular. The whole thing is not working anyway.

John

That's right.

Lisa

So, under the Trump Tax Plan, they got a back-door repeal of the Affordable Care Act by removing the mandate for each individual to carry health insurance.

John

That's right, so that is gone.

Lisa

So, it is gone, but not quite yet, John. It will be gone as of December 31st of 2018.

John

Right, so you got one more year.

Lisa

So, you have one more year. You have to carry that insurance, but then after that, it is repealed. And I'm sure they did that because the insurance markets, you know, we were already in the enrollment process. The insurance markets really couldn't adjust to the change in the law in time. So, that individual mandate to carry health insurance for those under 65 is repealed as of December 31st of 2018.

John

Yep. And, yeah, you know, there's one other one that doesn't go into effect for a full year, and that is they have removed divorce as a taxable event. And by that, I mean alimony no longer considered income for the person that receives it and no longer a deductible expense for the person that pays it. So, depending on whether you're somebody who might be receiving alimony or giving it, now is gonna be the time to either get divorced or not, depending on the circumstances.

Lisa

Pre-pay alimony, I don't know.

John

Yeah, I don't know, but that's a factor. Anyway, we appreciate you all listening. We hope you enjoyed this, so stick around until next week. We'll see you later.

Lisa

Bye-bye. Merry Christmas.

John

And of course, Merry Christmas to all of our Facebook Live. Look, I've got, "Merry Christmas," it's now on there. And I think I can even make it...looky there.

Lisa

Oh, nice.

John

Yay, and snowmen and reindeer, all kinds of stuff. Yes, Merry Christmas, Happy New Year to all of our Facebook Live folks. We'll see you later.

Lisa

Bye-bye.