How to cut taxes under the new tax act
Now that the massive new Tax Cuts and Jobs Act (TCJA) is finally the law of the land, what should you do? Every situation is different, but here are several practical suggestions for improving your tax outlook for 2018 and beyond:
- Adjust your withholding. There are "winners" and "losers" due to changes in tax rates, the increased standard deduction, the loss of personal exemptions and cutbacks and repeals of deductions. We can help you figure out how this will affect your situation. Depending on your needs and wants, you may end up increasing or decreasing your take-home pay by revising your W-4.
- Make your move. Pulling up stakes just because of new laws is a drastic reaction. However, if you were planning to move soon anyway, now may be the time to do it if you reside in a high-tax state. The TCJA limits the annual state, local and property tax deduction to $10,000 for itemizers. If you do move, remember that job-related moving expenses are no longer deductible.
- Pile up medical expenses. The threshold for deducting medical expenses is rolled back to 7.5 percent of adjusted gross income (down from 10 percent) for 2017 and 2018. If you can clear the lower hurdle this year, schedule routine doctor and dentist visits or finally undergo that surgery you've been putting off. The extra expenses will boost your medical deduction.
- Tap a 529 plan for private school. The new law expands the use of 529 education savings plans to cover private elementary and secondary schools. It's not just for college or grad school anymore. Distributions are exempt from tax, but be careful. Make sure you'll still have enough money in the account to pay for higher education.
Finally, coordinate your tax strategies into an overall plan for 2018. This is a better approach than trying to cash in on tax breaks one at a time. Give us a call and we can help.