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Will Washington's tax reform help you? It depends on your deductions

WASHINGTON – Republicans say their tax reform plan would make April 15 a lot simpler for millions of taxpayers, who in theory would be able to fill out their tax returns on a document the size of a postcard.

Due to lower rates and other changes, a majority of families that earn more than $50,000 would get a tax break under the plan, according to a report issued this week by the bipartisan congressional Joint Tax Committee.

Yet at the same time, the GOP reform plan would leave some families paying a lot for a little simplicity.

That report indicated that more than a quarter of families earning $50,000 or more would end up with higher tax bills -- and even some low-income families would pay more.

Which group does your family fall into?

Winners and losers under GOP tax plan

Given the bill's complexity, tax experts said that's a tough question to answer.

"It is almost impossible to determine how much the changes will affect middle America," said Anthony Illos, who runs B&I Tax Center in Amherst and who has been preparing tax returns for 50 years.

Clues to whether the tax plan is good or bad for your family can be found in your last tax return -- and the tax breaks you claimed.

That's because the tax reform plan would end, or dramatically limit, a host of the most popular tax breaks. The more you claimed, the more likely it is that you will lose under the GOP tax plan.

Here's a look at the most significant of the proposed changes.

Gone: The personal exemption

Republicans take pride in the simplicity of their tax plan, and it all stems from its elimination of many tax breaks and their replacement with the near-doubling of the standard deduction to $24,000 for married couples filing jointly.

To hear tax experts tell it, that's a gift to taxpayers who currently don't itemize -- so long as they don't have large families.

Generally, the more children you have, the more likely it is that you will pay more under the GOP tax plan. That's because the proposal eliminates the personal exemption, which currently allows all taxpayers -- whether they itemize or not -- to shield $4,050 in income from taxes for every member of their family.

Tax experts said for small families, the increase in the standard deduction will make up for the loss of the personal exemption. And the GOP plan also offers other breaks, such as an increase in the child tax credit from $1,000 to $1,600, that aim to help families.

Buffalo tax preparers such as Khaing Moe Naing noted for families with more than four children, the higher standard deduction may not be enough to make up for the loss of the personal exemption.

That's why, he said, "I'm concerned that overall, even a lot of lower-income people will be better off under the current tax code."

Shrinking: The SALT deduction

Gov. Andrew M. Cuomo and every other prominent New York Democrat has been criticizing for weeks the possible slashing or elimination of the deduction for state and local taxes.

They said doing that would make federal taxes so much higher for so many middle- to upper-income taxpayers that they will flee New York, leaving the state's remaining residents to pay higher taxes to support state services.

Under the House bill, you could still deduct property taxes of up to $10,000 a year, but not state income taxes. Sources said the Senate version of the bill is likely to repeal the so-called SALT deduction entirely.

What will it mean for you?

In the short term, if you don't itemize, it means nothing.

If you itemize, the question is: does the loss of the SALT deduction -- and every other deduction you might lose -- add up to more than you'll gain through the higher standard deduction and any change in your tax bracket?

One thing's for sure, said E.J. McMahon, founder and research director at the right-leaning Empire Center for Public Policy in Albany.

"The plan would clobber Albany’s favorite cash cow: the seven-figure earners who generate more than 40 percent of the state income tax," McMahon said, in a recent op-ed in the New York Post.

Gone: The medical deduction

The tax bill would mean changes, too, for any taxpayer that deducts medical expenses on their tax return.

Taxpayers can currently deduct medical expenses that exceed 10 percent of their adjusted gross income, but that deduction would disappear under the GOP tax plan.

Tax preparers said the elderly will be hurt the most by this change, given that many older people are draining their assets to pay for nursing care and writing off those costs on their tax returns.

Illos, in Amherst, estimated the move could increase federal taxes by $12,000 to $15,000 for older people in such situations.

Anthony J. Ogorek, a Williamsville financial planner, said that will mean such seniors will drain their assets faster and end up relying on the state-financed Medicaid program for their nursing care. "It means they will become a burden on the public sector sooner," Ogorek said.

Gone: College loan interest deduction

College graduates have long been able to deduct up to $2,500 in interest they paid on college loans. They didn't even have to itemize for the tax break.

But the college interest deduction automatically disappears under the GOP bill.

"This will affect a lot of kids," said Steven Elwell, vice president of Level Financial Advisors, in Amherst. "I can envision a scenario where they would not do so well under this bill."

Gone: the adoption tax credit

Having children is expensive but adopting can be even more so. Adoptive Families magazine reported that it cost an average of $37,000 to adopt a newborn in the United States in 2015 and $42,000 to adopt a baby from overseas.

To make it easier, the tax code long has granted families who adopt a $13,570 tax credit -- but that, too, would disappear under the tax bill.

That's a jarring proposal for a supposedly pro-life party to make, said Stasia Zoladz Vogel, president of the Buffalo Regional Right to Life Committee

"There is a big push in the pro-life community to change this," said Vogel, who said the adoption tax credit pays off for the government in the long run.

"It gets kids in loving homes and off government support," she said.

Coming: the tax return postcard?

From the Republican perspective, the loss of those deductions comes with a reward: lower rates and less trouble.

As if to prove it, President Trump last week took a draft of the new postcard-sized tax return and, cameras clicking, kissed it.

Illos isn't buying it. He looked at the GOP's proposed tax return postcard and scrawled below it all the essential information it omitted -- like how much a filer got in income from Social Security, pensions, 401(K) plans, capital gains and so on.

So even if Republicans in Congress managed to pass the tax plan, Illos doesn't expect them to ever fit a real tax return on a postcard.

"It's an impossibility," he said.

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