Many Americans have already filed their taxes for 2017, but the majority will be filing this month and finding out how the new tax plan is impacting them (if at all) for this spring’s filing. Some changes have already taken place such as the adjusted withholding in February’s paychecks resulting in slightly higher take-home pay. However, the impact is expected to be felt next tax season when filing for 2018. If you haven’t already done so, now is a great time to visit with your tax professional and do some strategic tax planning.
The New Tax Cuts and Jobs Act of 2017 keep the seven individual tax brackets but lower tax rates. Due to inflation over time income levels will rise and will move people into higher tax brackets. One way to lower your tax rate is by contributing more to your pre-tax retirement accounts to reduce your personal income. Visit with your tax professional regarding if this will make a difference going forward and adjust your contribution accordingly. The deduction for retirement savings remain in place so use it to your advantage while you can. Saving more is never a bad idea, and when you need to offset taxes due by maximizing contributions you benefit twice. The new plan doubles the standard deduction but eliminates personal exemptions which should encourage pre-tax retirement savings.
Next year’s tax filing will be unusual for those that were utilizing the mortgage interest deduction for homes valued over $1 million; the limit for the deduction is on loans of $500,000 or less. As home prices increase, those entering the housing market will be impacted in many areas of the country.
Some ‘oddball’ changes in the plan affect those divorcing in 2018 and paying alimony; it will no longer be a deduction for the payer but will be for the receiver. Additional changes are the doubling of the child care tax credit, and expansion of medical expenses to 7.5% of adjusted gross income for all age groups.
Due to the complexity of the new tax plan, it will become imperative for you to seek professional advice to make sure you’re aware of all the changes going forward. Keep your tax professional aware of all tax-related personal changes, pre-tax retirement savings contributions, and other factors such as inheritance or upcoming plans for retiring in the next one to three years. If our office can be of assistance in this area, please let us know.