Color of Money: Start the new year looking at your taxes
WASHINGTON -- Not sure what to make of the massive tax overhaul? Don't worry, you've got some time to figure it out.
While most of the changes go into effect next month -- and you might see a difference in your paycheck in February -- you won't file your tax return for the 2018 tax year until 2019.
Some people started scrambling before year's end to boost their charitable giving, prepay property taxes and get in last-minute business expenses to take advantage of deductions that are going away or being reduced. Under the tax law, there's a $10,000 deduction limit on all of your state and local taxes, including property taxes. Meanwhile, the standard deduction has been increased. It's going up to $12,000 for individuals, $18,000 for heads of households, and $24,000 for married couples filing jointly. Since more people will likely take the standard deduction, they won't itemize things such as donations and property taxes.
Like many other tax professionals, Mark F. Astrinos, a CPA and certified financial planner in San Francisco, cautioned against making moves without an overall plan. Tax "planning is not a singular event," he said. "It's constantly evolving as a result of tax law, financial markets, and changes to your personal situation."
The professionals' advice: Start the new year looking at your taxes, not one deduction at a time, but from a comprehensive perspective.
"Tax decisions shouldn't be made in a vacuum," said Cari Weston, director of tax practice and ethics for the American Institute of CPAs. "Tax-planning moves should be part of a larger financial plan. It may make good sense to make payments now to accelerate a tax deduction, but if the family is struggling to pay basic expenses or anticipates a need for those funds in the near term, I would suggest against it."
For instance, there are seven new income tax brackets: 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent and 37 percent.
"Changes to the tax brackets could mean you should file a new W-4 to adjust [payroll] withholdings," said Brooke A. Salvini, a CPA and CFP based in Avila Beach, California.
If your tax rate is decreasing, consider changing your withholdings so you can get more of your money throughout the year. Then, if you've got debt, use the extra funds in your paycheck to pay it down and save on interest payments.
You'll no longer be able to deduct moving expenses related to a job change. (There's an exclusion for active members of the military). So, you may have to beef up your negotiation skills to see if you can get your employer to pick up all or some of those costs.