Making Dollars, Making $ense: Tax Tips & Truths



BY JON MARZANO

Managing Principal

 

For the vast majority of tax filers, 2018 returns are done.  If you filed an extension, you still have some time but the clock is ticking. There was a lot of anticipation leading into the end of the year about how the Trump tax cuts of late 2017 were going to affect the amount of taxes that we owe.  As we meet with our clients and talk through their current situations, we have received a lot of mixed reviews.   We have come to the conclusion that it was not as generous of a tax change as many anticipated, and in a number of instances, hard dollar tax bills are actually going up for a great number of our clients.  It’s all about where you fall on the income spectrum and how many deductions you previously had use of that are now lost or reduced. Many taxpayers got hit with extra tax from the state which may have offset any refund that they were due from the federal government.  What one hand giveth, the other hand can taketh away.

Now that we are through with this year’s filing, we need to determine if there are things we can do to be more prepared for next year.  For example, if you are still working and you received a federal refund, you may want to adjust your withholdings down.  You can change the amount your employer withholds from each check and it may be wise. Don’t let the government get a free loan on the amount you have overpaid in taxes, which is effectively what you are giving them by overpaying all year.  If you owe more in taxes this year than last, consider increasing the amount you put into pretax retirement accounts.  Bump up your 401k savings rate at work or make a contribution to a traditional IRA, if you are eligible.  If you owed more than you planned, consider putting money into an HSA (Health Savings Account) as part of your overall health insurance strategy.  You can get the deduction for contributing to an HSA even if you take the standard deduction when you file your taxes.  Having access to money for qualified medical expenses after you retire will be important and necessary.  We all want to stay healthy and it could take some extra money in retirement to make that happen.

There are even a couple of strategies that can benefit retirees and make a difference in the amount of your tax bill.  If you are required to take RMDs (required minimum distributions) and you don’t count on that income to support yourself, you can donate those RMDs directly to a charity and avoid the taxation on the distribution.  This is especially important to those retirees taking RMDs and who also are now using the standard deduction.   We find some early retirees are able to do Roth conversions on their IRAs and 401ks, and avoid taxation on the conversion because of the high standard deduction for married couples.  Take advantage of this opportunity; it may not last long.

It may take a combination of several adjustments to try and “dial” into the best tax strategy for you and your family under the new laws.  Taxes have always been confusing and we at Marzano Capital Group have always advocated consulting with a professional.  If you want some advice on how to incorporate more tax efficient strategies into your financial planning, give us a call.  We are here to help!


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