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Teplitz Financial Group

Another Word About Your Taxes

It is the end of the year. And like most years, the Christmas fog and New Year's Eve planning are probably first and foremost on your mind. But this is NOT just any year. When the clock strikes midnight this Sunday, we will not only turn the calendar to a new year...we will turn the calendar to a new tax code and there are things all of us should do to prepare.

There are many changes to the tax code coming. Unlike what President Trump, Treasury Secretary Steve Mnuchin and Speaker Paul Ryan had long talked about, there will be no tax filers using postcards, and the tax code will not suddenly become less complex. In fact, the Tax Reform and Jobs Act ADDS about 11,000 pages to the tax code.

For many, much of the initial impact will be positive. However, there are several groups of people who might see the positive impact of a lower marginal tax rate dulled by other parts of the legislation. Here are some of the groups that should be concerned:

People who own real estate in New York, New Jersey, Connecticut, Maryland, Illinois, Wisconsin and California. With the SALT deduction capped at $10,000 those with high real-estate taxes will receive less of a deduction.

People with high STATE income tax. Those with high real estate taxes are not the only ones impacted by the SALT deduction cap. If you live in a place like California, Oregon, Minnesota, New Jersey, Washington DC or New York, you might go above the SALT cap on state income tax alone. For example, if you live in New York and earn more than $115,000, you will likely be above the cap.

Families or single parents with more than three children. For many, the doubled standard deduction will be a big win. However, one of the sacrifices of this win is the total elimination of the personal deduction. While the math works to the advantage of families who do not itemize and have three kids or fewer, if you have more than three children, you are, in fact, losing some deductibility of income.

There are undoubtedly others who will not find 2018 as generous as the rest of the country's individual taxpayers. That said, there are some things that these groups, and others, can do before the end of 2017 to mitigate the downside.

Pre-pay your 2018 real estate taxes. It is up to your county as to whether or not this is permitted, but from emergency sessions (in places like Maryland) to executive orders (in New York) most people who would be negatively impacted in 2018 can do something about it. Doing this not only allows you to take deductions that might not be there next year, but allows you to do so at a higher marginal rate. This is a good strategy for anyone who itemizes and will have state taxes north of $10,000 next year.

Increase your 401(k) Contributions in 2018. Since contributions to a retirement plan are not counted as income, they will help lower your state tax bill. The lower your federal income, the lower your state tax bill. If you are going to pay extra money, it may as well be to yourself.

Increase charitable contributions in 2018. Same as above. If you are going to pay extra money either way, you may as well pay it to a non-profit organization whose work you believe in.

Enroll in your FSA or HSA (if eligible). Many companies offer employees a Flexible Savings Account or Health Savings Account as a way of prepaying qualified expenses with pre-tax dollars. If you have not enrolled or are enrolled and have not maxed out your contributions, you may want to consider doing so in 2018. Not everyone is eligible, so make sure you check with your employer.

Have additional taxes withheld in 2018. If you are like me, you have probably heard something to the effect of "your paychecks are going to get bigger" ad nauseam on cable news. Now, it is true: beginning in February, fewer taxes will be taken from your paycheck. However, if you itemize, I might suggest amending your W-4 to add back some of that increase. I know, no one likes giving extra money to Uncle Sam. But until April, 2019, when you know exactly how this bill impacts you, why not play it safe rather than sorry? My biggest fear in this bill is that everyone will spend the additional money they see in their paychecks, and then owe taxes they can't afford later on.

And one more that applies to everyone...

Don't blindly believe these tax calculators. Look, we all want to know how this is going to impact us, but those calculators can be fool's gold. Even the best of them don't take into account your personal tax situation. It is impossible for them to be 100% accurate, so instead of using them as a guide, talk to your accountant. He or she will be able to give you a much better idea of what your tax picture will look like in the new landscape.

As the year closes out, it is important to remember that taxes are only one of the many moving parts of our economy. This year has certainly been better for the stock market than anyone predicted. Unemployment has continued to remain low. These are both good things. But neither of them is an adequate predictor of 2018. As always, we keep our seat belts fastened, as this 9-year-long recovery cycle roars on, and try to enjoy these last few days of the year with friends and family.