As the new tax law goes into effect, many people are starting to wonder how this will affect their overall paychecks. You should see some bump in your paychecks when the new tax tables go into effect somewhere in Mid-February or early March, but there are a host of financial decisions that you need to start considering now in order to maximize your own tax situation.
- Adjust your withholdings – It’s ironic that most people give themselves a high five when they get a refund come tax time. Not only do you allow the Government the use of your money for a year, you also get taxed on your own state refund federally the following year. Since we have new tax brackets and tax tables, you should really look at your withholdings here in the spring to maximize your cash flow here in 2018. Remember, if you are getting your taxes done, Turbo Tax and Tax Slayer are two low cost options if your taxes aren’t complicated.
- It might be time to convert -. With the tax brackets changing this year, especially the bottom four tax brackets at 10%, 12%, 22%, and 24%, you might want to consider looking at a partial or full conversion of your Traditional IRA to a Roth IRA depending on your overall tax bracket. It’s possible here in 2018 that you start a business that will show a tax loss or you have an off year in your income which also may allow you a special conversion year of your Traditional IRA to a Roth IRA.
- Should you MOVE? – One of the major tax law changes is that your state income taxes, local income taxes, and your property taxes are going to be capped at $10,000 here in 2018. Is it time to call Two Men And A Truck and think about moving to a state where you have ZERO state income tax. There are major states including Texas, Florida, Washington, Tennessee, Nevada, and a few more that you will pay no state income tax. If you don’t love where you live and your job could give you the mobility to move to another state, this could be perfect opportunity to take advantage of this in 2018.
- Will Smith Turns 50 – Yes, I said it, Will Smith turns 50 this year! If you saw the list of celebrities who turn 50, I think you’d gasp at how old all of us are getting. That being said, the IRS changed the contributions for maximum investment this from $18,000 to $18,500 and for those of you who turn 50 in THIS calendar year you should make sure to set up your $6,000 catch up contribution for your 401k. That could sure put some extra tax money in your pocket while also helping you save more for retirement.
- 529 Isn’t Just College Anymore – This may be the year to completely rethink your saving strategy for private elementary and secondary school instead of college with your 529 plan. As the tax law changed this year, you can now use 529 plans for private school up to $10,000 per year. If you have younger children and you feel confident that they are going to attend private school for their K-12 education, then there is a smarter strategy here allowing some of those tuition dollars to grow tax-deferred and ultimately come out tax-free for private school.
- Downsize – If you really believe high dollar residential real estate is going to continue to grow in your area, then you can brush this one aside. However, if you think about the cost of owning a McMansion type home, you might want to consider downsizing with the two new tax rules that went into effect. For one, NEW mortgages will be capped at $750,000 for the mortgage interest deduction, and as mentioned earlier in the article property taxes (combined WITH state and local taxes) will be capped at $10,000.