Q. Will the Trump tax plan help us or hurt us? I’m retired and my wife works part-time. For 2015 and 2016, we were in the 15 percent tax bracket. Our income before deductibles was from the sale of $40,000 of IBM stock with a capital gain of $22,000 each year, a $15,000 conversion to a Roth IRA from a traditional IRA, $3,500 wage income and about $8,000 in interest and dividends. Our federal tax for 2015 was $2,577. For 2017, the plan is to start taking my Social Security to pay for our health insurance, which should provide us with about $22,000. We will do another Roth conversion for $15,000 and sell $20,000 of IBM stock which will be a $10,000 capital gain. My wife’s wage income will be about the same as will the interest and dividends.
— Tax planner
A. We don’t have a crystal ball, but we’ll give this a try.
First, it would collapse the current seven tax brackets, which range from 10 to 39.6 percent, into three income tax brackets, said Gerard Papetti, a certified financial planner and certified public accountant with U.S. Financial Services in Fairfield.
They would look like this:
Tax Rate Taxable Income
Ordinary Capital Gains Single Married Filing Joint
12% 0% $0-$37,500 $0-$75,000
25% 15% $37,500-$112,500 $75,001-$225,000
33% 20% $112,501+ $225,001+
The plan would also increase the standard deduction to $15,000 for single filers and $30,000 for joint filers, Papetti said.
Personal exemptions would remain unchanged at $4,050 per person in 2017, indexed, and it would limit the amount of itemized deductions to $100,000 for individuals and $200,000 for joint filers.
The plan would also repeal the Alternative Minimum Tax (AMT).
Based on the information you provided, your 2017 income would look like this:
Social Security: $22,000
Roth IRA Conversion: $15,000
Capital Gain-IBM Stock: $10,000
Wife’s Wages: $3,500
Interest & Dividends: $8,000
Gross Total: $58,500
“Trump’s tax plan would not negatively impact you as income up to $75,000 still has a zero percent capital gains rate for married filing joint,” Papetti said.
One item you should be aware of is the amount of taxable income you have because that determines what amount of your Social Security benefits are taxable, Papetti said.
“Based upon the taxable income you provided and assuming no municipal bond interest and no adjustments to income (IRA contributions, alimony, etc..), $8,975 of your SS benefits would be taxable,” Papetti said. “However, If you do not convert $15,000 of your IRA to a Roth, only $250 of your Social Security benefits would be taxable.”
Based on current tax law and a 15 percent tax bracket, Papetti said that would save $1,300 of federal income taxes ($8,975 less $250 = $8,725 x 15%).
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