Tax Planning - TCJA Brackets and Ranges

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gypsydavey
Posts: 51
Joined: Wed Nov 02, 2016 10:56 am

Tax Planning - TCJA Brackets and Ranges

Post by gypsydavey »

So, I understand that the TCJA tax brackets are currently scheduled to revert to 2017 levels in 2026. I haven't seen any definitive statement on how the income ranges will be determined at reversion time.

Is TCJA reversion (as written in the bill) applicable to bracket levels AND ranges, meaning the 2017 ranges return as well? Or, will the 2026 income ranges be adjusted for inflation based on the 2025 ranges? Maybe this information is in the language of the bill but haven't been able to google the actual text of the bill successfully, never mind the specific language.

It's probably a "doh, of course" on my part but I haven't found a succinct answer to the question. This info would be helpful for tax planning scenarios.

Thanks in advance
Silk McCue
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Joined: Thu Feb 25, 2016 6:11 pm

Re: Tax Planning - TCJA Brackets and Ranges

Post by Silk McCue »

Not likely at all that there is language describing what precisely happens when they sunset. Logically the adjustments that would have been made annually were the law not passed, will be made for the intervening years to restore them as if the law was never passed.

Cheers
Makefile
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Joined: Fri Apr 22, 2016 11:03 pm

Re: Tax Planning - TCJA Brackets and Ranges

Post by Makefile »

An interesting part of this is that I believe the switch from CPI-U to C-CPI-U for inflation adjustments is permanent.
fyre4ce
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Re: Tax Planning - TCJA Brackets and Ranges

Post by fyre4ce »

For a separate project I have been working on, I tried to work out what the tax brackets would look like in the case of a sunset of the TCJA rates. Feel free to check out that Excel spreadsheet if you'd like to see.
Topic Author
gypsydavey
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Joined: Wed Nov 02, 2016 10:56 am

Re: Tax Planning - TCJA Brackets and Ranges

Post by gypsydavey »

Silk McCue wrote: Wed Jan 26, 2022 6:38 pm Not likely at all that there is language describing what precisely happens when they sunset. Logically the adjustments that would have been made annually were the law not passed, will be made for the intervening years to restore them as if the law was never passed.

Cheers
Silk, I agree. That is my best guess as well. I was trying to answer the question: what income level in 2026 is the top of the 15% bracket, 25% bracket, etc. Makes no sense to reduce the income brackets as inflation marches on. :shock: Wondered if anyone had actually found specific wording in the bill.

fyre4ce: Thanks for sharing your spreadsheet. I had a glance and will check it out more fully. Answers to the Roth v. Trad and projecting future growth are larger issues than my question sought answers to but you've done some significant work here and it deserves investigation.
secondcor521
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Re: Tax Planning - TCJA Brackets and Ranges

Post by secondcor521 »

If the TCJA sunsets as currently scheduled, it looks to me like one would take the 2016 rates and brackets and increase them by C-CPI-U for the intervening years.

The text of the law can be found here: https://www.law.cornell.edu/uscode/text/26/1. Note in particular subsections (i) and (j), which eventually refer back to (f)(3)(A)(ii) where the inflation factor is calculated.

The text of the TCJA bill is here: https://www.govinfo.gov/content/pkg/BIL ... hr1enr.pdf. The wording of the bill regarding tax brackets is on the first few pages, and is reflected in the law as shown at the Cornell link above.
MrJedi
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Re: Tax Planning - TCJA Brackets and Ranges

Post by MrJedi »

Official text is here:
https://www.congress.gov/bill/115th-con ... iew=closed

Perhaps this is the text you seek:

``(C) Inflation adjustment.--In the case of any
taxable year beginning after 2018, each of the dollar
amounts in clauses (i) and (ii) of subparagraph (B)
shall be increased by an amount equal to--
``(i) such dollar amount, multiplied by
``(ii) the cost-of-living adjustment
determined under subsection (f)(3) for the
calendar year in which the taxable year begins,
determined by substituting `calendar year 2017'
for `calendar year 2016' in subparagraph (A)(ii)
thereof.
This part does not say it does not apply after 2025. It reads any taxable year beginning after 2018.
Topic Author
gypsydavey
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Joined: Wed Nov 02, 2016 10:56 am

Re: Tax Planning - TCJA Brackets and Ranges

Post by gypsydavey »

Thank you secondcor521 and MrJedi.

The bill's specific language is what I sought. I guess that's as close to foretelling future guidance as can be expected :wink:
determined by substituting `calendar year 2017'
for `calendar year 2016' in subparagraph (A)(ii)
thereof.
With the assumption that future "calendar year" language applies going forward in "Subsequent years ... beginning after December 31, 2018" and nothing specific as to what happens "After December 31, 2025".
secondcor521
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Joined: Wed Sep 10, 2014 4:11 pm

Re: Tax Planning - TCJA Brackets and Ranges

Post by secondcor521 »

gypsydavey wrote: Thu Jan 27, 2022 9:12 am With the assumption that future "calendar year" language applies going forward in "Subsequent years ... beginning after December 31, 2018" and nothing specific as to what happens "After December 31, 2025".
It is implied by the fact that subsection (j) essentially goes away on 1/1/2026 as if it were never there.

Pending further legislation, as they say.
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