7 Steps You Can Take To Adapt To The New Tax Law

Tax laws have just changed, and that is likely to affect you. Whether your see a net benefit in your paycheck (which I hope you do) or end up paying more is a function of personal factors like your mix of income sources, your overall income, what you currently deduct, how many children you have and where you live. Here are some steps you can take now to adapt to the new law:

Step One: Run a tax projection

How will the new tax legislation affect you? Will your taxes go up or down? The only way to know for sure is to run a tax projection – an estimate of what your tax return will look like for 2018. Several sites have tax projection calculators up now which incorporate proposed major changes, including CalcXMLCNN, and MarketWatch.

If you’ve got a complex situation and you think you may owe more or need to make estimated tax payments, consider asking your accountant to run a “pro-forma” tax projection early in 2018 to gauge your tax liability for the remainder of the year.

Step Two: Update your tax withholding

You may need to withhold more or less going forward. Unfortunately, it’s going to take some time for payroll departments – and the IRS – to put out new forms and rules. If you think you may owe less in taxes, keep your withholding allowances the same for now until the withholding guidelines are updated. You may not need to make any changes to see more in your paycheck once your payroll department has implemented the new standards.

If you think you may owe more, consider reducing your withholding allowances. Remember, it’s better to overpay and get a refund than underpay and get penalized. When updated for the new law, use the IRS withholding calculator to estimate how many withholding allowances you should claim for the remainder of the year. Contact your payroll department to change your elections (Form W4) if needed.

Step Three: Losing employer-subsidized commuter benefits? Increase your own contribution to your commuter account

The GOP tax plan eliminates the tax incentive for private employers that subsidize their employees’ transportation, parking and bicycle commuting expenses. If you’re using this benefit and your company has been paying for all or some of it, make sure you increase your contribution to your commuter account. Your contributions will still be pre-tax. The max is $255 per month.

Step Four: Consider the impact on buying or selling a home

The deduction limit for mortgage interest drops to $750,000 of debt on your primary residence. If you have a larger mortgage and are planning to stay in your home, no worries. It remains $1 million for homes purchased before Dec. 15 of 2017.

However, if you are buying a new home, a jumbo mortgage is not as financially attractive. Thinking about a vacation property or second home? Your mortgage interest will not be deductible over the limit of $750,000, including your primary residence.

If you are selling your primary residence, you can still exclude up to $500,000 for joint filers or $250,000 for single filers of capital gains if you have lived in the residence for two of the past five years. Moving for work? You may no longer deduct your moving expenses.

Step Five: Review the Roth/pre-tax decision

Generally, the lower your income tax rate and the further away you are from needing your savings in retirement, the more sense it makes to contribute to a Roth 401(k) and/or a Roth IRA.  However, if you’re losing itemized deductions with the new $10,000 cap on deducting state and local taxes (SALT), run some numbers to see if a pre-tax 401(k) contribution can help lower your tax rate. Conversely, if you don’t itemize and the standard deduction exceeds what you could take in previous years, it may make more sense to change from pre-tax to Roth. Compare your two options with this calculator once the new rates are incorporated.

Step Six: Rethink home equity loans

The deduction of interest on home equity loans has been suspended through 2025 unless the loan is used to substantially improve your home. This can make home equity loans more expensive. You may want to think twice before taking out a home equity loan and perhaps give higher priority to paying off existing ones.

Step Seven: Rescue your 401(k) loan if you leave your job

Up until now, if you left – or lost – your job while you had a 401(k) loan outstanding, any unpaid loan balance would be taxable and penalized at an additional 10 percent. Under the new law, it appears that you have until the April filing deadline to basically contribute the unpaid balance to an IRA and call it a rollover.

For example, if you had a $2,000 loan balance outstanding when you left your job in June, you would have until the following April to contribute $2,000 to an IRA rollover in order to avoid the income taxes and additional 10 percent penalty. That’s a good deal if you can find the money

Keep reading. There’s more in the tax bill that will have implications for individual taxpayers. If your income is complex or you have questions about your personal situation, please consult a professional tax advisor.

This post was originally published on Forbes.

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