In December of 2017, President Trump signed the new Tax Cuts and Jobs Act into law and, for the remainder of his presidency at least, we’ve got a different tax system to live by. I’ve been fielding a lot of questions from clients asking if these new tax laws have any significant value for retirees.
The short answer? A definite yes.
It’s a phrase I grew up hearing from my dad. He believed that you have to make the best of your current circumstance. If you happen to be in sunny weather, so much the better — that’s the perfect time to get to work.
The tax brackets are now capped out at 37%, reduced from a high of 39.6%. For middle-income earners earning between about $77,401 to $156,150, this means you’ll find yourself lowered into the 22% bracket, down from last year’s 25%. While it might not seem like that drop means anything, ultimately that’s a difference of $4,229 (without any deductions per year.) That’s a lot of hay!
On top of that, the standard deduction for a married couple has doubled to almost $24,000. Effectively, this means the first $24,000 a couple makes is now basically tax-free. If you want an early prediction, go to the IRS Tax Calculator.
Keep in mind this isn’t all good news, because even though that deduction has doubled, some of the ones you’re used to applying for won’t be available next year. We’re seeing major cuts in personal exemptions, job expenses, moving expenses, and many others. Additionally, the cap on State and Local (SALT) deductions now in place will probably hurt the 1 out of 10 taxpayers that do prefer to itemize, with those living in states like California and New Jersey taking the hardest hits.
Ultimately, whether you’re for or against the new tax plan, it’s never been clearer it’s in your best interest to start making friends with a CPA. Even more clear is that if your financial advisor and your CPA don’t know each other, you’d better introduce them if you want the best retirement plan in place. We partner with local tax attornies and CPAs, and work hand in hand to create your plan.
For more information, download our free 2018 Tax Cheat Sheet