Roth IRA Booby trap

[olds442jetaway]

    Too many W-2Gs can boost your AGI on your 1040 return to the point where you are unable to make your Roth IRA contributions even though you will probably have a large gambling loss and offset the gross winnings on your SCH A when you itemize your deductions. Happened to us in 2016 and again in 2017 and we had to undo both as excess IRA contributions. You then lose the tax benefit on tax free earnings on the Roth contributions that you were unable to make. Won't happen for 2018 though since the new tax law as it relates to one's deductions will force me to play small from now on. Probably save a ton of money to boot. Don't think the casinos will be too happy though.

[DaBurglar]

     Too many W-2Gs can boost your AGI on your 1040 return to the point where you are unable to make your Roth IRA contributions even though you will probably have a large gambling loss and offset the gross winnings on your SCH A when you itemize your deductions. Happened to us in 2016 and again in 2017 and we had to undo both as excess IRA contributions. You then lose the tax benefit on tax free earnings on the Roth contributions that you were unable to make. Won't happen for 2018 though since the new tax law as it relates to one's deductions will force me to play small from now on. Probably save a ton of money to boot. Don't think the casinos will be too happy though.


Yeah, this new tax "law " sucks on the FRONT end as far as casino gambling goes since the vast majority of serious, high rolling gamblers are now unable to reap the tax benefits of losing.

Does anyone besides me recall how sometime in 2011-2012, Obama made a comment in the media aimed at middle and lower class people, casually advising them on how to weather the lingering effects of the stubborn recession, which was by then improving but slowly....he stated how people will just need to be careful on how they spend money, making certain to prioritize spending for important stuff, and one of the things he used as an example was "perhaps putting off that next trip to Vegas for a few months"...   Now there was ABSOLUTELY nothing wrong or inappropriate about what he said (it was 100% good advice), but Steve Wynn blew a gasket saying Obama was anti-vegas and was going to kill Vegas' economic recovery etc. It was absurd, shameless greed on Wynn's part ( made even more absurd by the fact Harry Reid, Democrat, was the best friend casinos and Vegas ever had!)

But now with this new tax law, you don't hear a peep from the casino industry...and that's because the BACK end is so sickeningly favorable to corporations in terms of taxes. They will see a 15% drop in total federal taxes, which means huge bonuses for all the executive stuffed suits and filthy rich owners like Wynn....the new tax law does not offer any additional incentives to put those new riches into new upgrades, improvements, infrastructure or JOBS.

[royal flush]

someone needs to win others need to adjust their game

[Eduardo]

Wow hadn't thought of that. I'm guessing enough W2G's could be potentially dangerous for some folks who claim certain benefits where a low AGI qualifies them or anyone close to an AGI cutoff, even if they itemize the losses? Maybe something to look out for in the games you play if you fall into that category.

[olds442jetaway]

Here is a made up example, but not far from my situation. The new tax law caps state and local deductions at 10k. In my state, the state reaps 5 or 6 percent from gross gambling winnings. Maybe your state taxes withheld from your pay and local and state property taxes alone are 15k. Maybe you wrote a big check to the state to cover the state tax on the gross winnings of 8k. So you are ok writing off your federal gambling losses on sch a but you lose 13k of the 23k you had in state and local taxes paid. That alone is about 3k in tax you lose.
     On top of that, the gross gambling winnings are all front loaded onto the first page of your 1040. It boosts your AGI to the point where you cannot make a Roth IRA contribution anymore.
     Finally, the new tax law doubles the standard deduction for most couples non seniors it would be in the 24k range. Most people will not have itemized deductions that high, but to write off your gambling losses, you are forced to itemize and you lose again.
     What most people also don't realize is that yes the standard deduction was doubled, but did you know that the new tax law also eliminates deductions for personal exemptions. That is over 4k per exemption. For a husband, wife, and 2 kids, thats 16k. Round numbers being used here.
     If you are unfortunate enough to have to pay alimony let's say 40k a year or so.....that deductions from your income is gone too.
     As always, the above post is just my opinion and interpretation of the changes. Each person should consult with their own tax advisor.

[DaBurglar]

Olds, excellent post and well written.   You clearly pointed out just a few of the many AWFUL, lousy aspects of this absurd "tax revision", which the VAST majority of economists are describing as a travesty which is so cynically and shamelessly geared to favor the wealthiest of the wealthy, the financial industry (Wall Street), banks and the mega-corporations.    The crazy thing is, no one "needed" this absurd tax cut to begin with, the economy was doing splendid (not just on the basis of the actual numbers, but per the Republicans and Trump's own words in the months leading up to their ram rodding this TAX "plan" through)    Trump and the Republican dominated congress inherited an great economy in January 2018, this is a fact.....regardless, as I stated many times before, Presidents deserve neither the credit nor the blame for the economy in general;  it is far too complex and there are far too many factors and elements that make the weather, so to speak.   Much like Professional Sports coaches and Managers who OFTEN (but not always) get too much blame when their team loses and too much credit when they win, a President really does not have a lot to do with the economy's long term overall performance.....A president CAN have short term, immediate impact of limited scope and duration depending on what he says or does each day/week/month as it pertains to economic issues & policy, but it really is the CONGRESS and the FED which have the most influence and direct control over economic issues.  The president has a role too obviously, but there is a LOT going on that most Americans remain clueless and oblivious about.This tax fiasco will go down as one of the worst, most egregious acts ever in the history  of the US Congress and Government;  Once the fiscal DEFICIT for next year is announced (actually well before the final official number is in) people (and foreign governments who purchase US treasuries too) will be in a tizzy..... Then you may very well see things you never ever thought you'd ever see....here's one big, very possible example: the US government imposing taxation on RELIGIOUS organizations and closing all religious tax loopholes in an effort to stop the RED INK.  

[Carcounter]

No political rants in 2018 eh? I am impacted negatively by the tax law as I live in a high tax state-NJ and pay substantial property taxes, state income taxes etc. I am fine with this as long as it works out for the betterment of the Country in general. Let's see how this works out before we assume all this gloom and doom. I think the tax law will be overwhelmingly positive, but if I am wrong, I will admit it. Give it a year and let's see where we are at.

[olds442jetaway]

I don't know how anybody could be fine with this plan except maybe the spouse receiving alimony. It could be either man or woman, but usually is the woman. She will no longer have to claim the alimony received as income. Since the payer usually the husband will no longer be able to deduct the alimony paid on his return, smart lawyers will no doubt negotiate a lower payout to the wife since it will cost the husband a lot more in taxes. The wife could and probably will lose out anyway because of this. Of course roles can always be reversed and quite often are today. Almost never in my day.
     If my income and gross gambling winnings for 2018 are the same as 2017, this awful plan will cost me an additional 5k at least in federal tax. No thanks Pres Trump. I'm adjusting everything accordingly. The casinos will be the ones to suffer the most if there are enough players in my situation who realize the implications of this new tax law. Oh, and the State of Ct already broke can kiss that extra 8 or 9k I paid them last year on my gross winnings goodbye for the 2018 tax year. The other 6k I paid from our wages and pension will be quite enough thank you.

[alpax]

I am weary about the total amount of W2Gs on two levels, I hope to get enough to cover the new standard deduction of $12,000 for the single tax filer, I want to itemize my highly taxed state tax. However, the treshold I wish to avoid after pursuing as many tax deductions is the Modified Adjusted Gross Income of under $120,000 to be eligible for Roth IRA contributions. Yes, I hate the fact that I lose the $4050 personal exemption this year since it is included as part of the higher standard deduction.

For married filers, it is $24k for standard deduction and $189,000 MAGI for the Roth IRA.

I just wanted to add that the Roth IRA works differently for a younger age groups.

If one does not qualify due to having high MAGI, one can contribute towards a Traditional IRA with a tax deduction, and then convert that into a Roth the following year with taxes reported on the account.

Unfortunately, the age limit to contribute into Traditional IRAs is 70 1/2. But for people under 59 1/2 years of age, they are also subject to the 5-year rule as well should they wish to withdraw their gains.

I feel old's pain of not being able to have a Roth IRA for the year.

[Carcounter]

Gents, we live in high tax states by choice. Of course family has a lot to do with that.I will feel the pain too, but have to give the Repubs credit for devising a tax plan that hits Blue states where it hurts.Also benefits the midwest and south the most. They are not going to win states like California, New York, New Jersey, Connecticut anyway, so there is nothing there to lose.