Tax preparation: 10 steps you can take to adapt to the new tax law
With the recent passing of the Tax Cuts and Jobs Act, many Americans are wondering how their finances will be affected. That’s a fair question, since a tax overhaul of this size and scope hasn’t happened since the 1980s.
News reports have come out since the signing of the bill detailing how some companies have been able to provide new raises, bonuses, and benefits to employees. Since many Americans are employed by someone else, you may want to know: how will the new tax bill affect me as an employee?Read more ↓
Hire an accountant
There are big changes coming, so even if you don’t expect to see much of a change, it’s still a worthwhile investment to consult a tax professional — whether that’s a CPA or just a tax preparer. They may be able to spot problems with your filing or even help you get deductions you didn’t know you qualified for.
Run a projection
It’s not all that difficult to run a projection of how much your taxes will cost or return to you, even if you aren’t quite ready to file. If you do it now, you can get an estimate of how much you may owe, if anything. This will leave you with more time to file an extension if necessary.
Update your withholdings
When we first start a job, we all have to fill out paperwork about our tax withholdings. Contact your HR representative to ask about updating your withholdings. This is worth doing every year or every time you and/or your family experience a life event, such as the marriage, birth of a child, or buying a home.
Rethink buying or selling your home
Speaking of homes, your mortgage interest is still deductible, but only up to $750,000 now. (Previously it was up to $1 million.) If you were planning on taking out a mortgage over that amount this year, consult a financial advisor to decide if this is the right move for you.
Don’t count on deducting your moving expenses
2017 will be the last tax year where employees can deduct expenses if they relocate specifically for a job. If you are considering doing that this year, see if your employer will foot part of the bill, especially if it’s not a voluntary move on your part. Their answer might pleasantly surprise you!
Assess your retirement situation
If you have a 401k or Roth IRA, consider increasing your contribution. It may help your tax game in the long run. The tax rules around rolling over these types of retirement accounts have changed, so make sure you’re taking advantage of them.
Reconsider taking out a home equity loan
Under the new tax law, home equity loans will be taxed differently. Previously, the amount was tax deductible. This will no longer be the case after this tax year. Many expect home equity loans to become more expensive moving forward.
Don’t rely on a SALT deduction
Those who live in states with famously high tax rates (such as New York and California) will be disappointed to learn that state and local taxes can no longer be deducted. If you live in one of these states, or any other highly taxed state, begin saving now.
Double check on your commuter benefits
Previously, employers were incentivized through tax breaks to offer commuter benefits to employees. This deduction is going away for businesses, but with the other tax breaks for corporations, it may end up being a wash. Check with your employer on the future of this benefit. Personal contributions are still deductible up to $255.
Assess your financial situation holistically
Whether or not you’re financially savvy, you may want to take this opportunity to assess your financial situation as it currently stands and weigh it against your long-term financial goals. While the tax reform bill may not affect your day-to-day life right now, it’s always a good idea to take a step back and look at the big picture once in a while.
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