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7 Changes to Consider with the New Tax Bill

| May 09, 2018
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A wise man once said “A fool and his money are soon separated…. the rest of us wait until we file our taxes”. For most of us taxes make up a considerable amount of our expenses and can for many be the largest expense we have. We all know the saying around death and taxes, and while taxes may not be going anywhere they are changing. By now you have heard about the “Tax Cuts and Jobs Act” which was signed into law last year, but do you know how this will impact your specific tax situation?

Let me be clear I, nor anyone at Varra Financial are tax advisors or CPAs this is not meant to be specific tax advice, just an overview on some of the major items that have changed and that you may consider. Please consult a tax professional for specific advice.

While there is a lot we can discuss on these changes, below are seven major changes for the 2018 tax year on the individual side. These changes for the most part will sunset in 2025 so planning opportunities to individuals may be limited.

Still seven tax brackets but thresholds and the tax rates have changed.

Thresholds are up and tax rates are slightly down. Depending on your income this may have a considerable effect on your marginal and effective tax rate.





Long term capital gains and qualified dividends have their own brackets now and are no longer tied to your income tax bracket.

[1] Source: https://www.marketwatch.com/story/your-simple-guide-to-the-new-capital-gains-tax-rates-2018-04-16


With the standard deduction being increased, far fewer will itemize on their taxes.

“About 30 percent of tax filers now itemize, according to the Internal Revenue Service. But that number could plummet to about 10 percent next year because of the new tax law” Gary Strauss, AARP, January 22, 2018

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[2] Source: https://www.forbes.com/sites/kellyphillipserb/2018/03/07/new-irs-announces-2018-tax-rates-standard-deductions-exemption-amounts-and-more/#b275fe03133d 


If you itemize, know some of the major changes and how it can impact you.

Source: Fidelity research 12/22/2017https://www.fidelity.com/viewpoints/personal-finance/tax-proposal-details    


The tax credit has been doubled from $1,000 to $2,000 and will include more families with raised phase out levels.


Source: http://personalfinance.janney.com/2017/12/tax-cuts-and-jobs-act.html   


Increased flexibility with 529 plans

They may now be available to pay for private school and secondary education. What does this mean? If you have children, or grandchildren (available to those outside family as well) that you contribute money to, those funds can now be used earlier for private education. If you are considering doing this, we would encourage you to think of the potential trade offs with doing so.

You may want to reconsider your exemptions on your paycheck

Some may find that their paychecks are larger by comparison, but depending on how your deductions are altered, some may end up owing at the end of 2018 unexpectedly. The IRS offers an updated calculator to try and help you know how many exemptions you should take. You can find this at   https://www.irs.gov/individuals/irs-withholding-calculator

This high-level overview on the new tax code goes over just a few of the major changes, but it may be worth a closer look with a trusted tax expert to see how your specific situation may have changed. Many I know who file their own taxes may want to use this as a time to get a double check from an expert. With all the new changes there may be considerable planning opportunities which software, and automation may be unable to find. As the saying goes we all have to deal with two things in our life, death and taxes, it doesn’t mean we need to pay more than we should.

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Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Prior to investing in a 529 Plan investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.

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