Happy New (Tax) Year!

Friday, January 12, 2018

Happy New (Tax) Year!

In case you were indulging it too much egg nog and missed the news, Congress passed a new Income Tax Act effective for the 2018 tax year. While dissecting exactly what this act means to you depends in large part on your personal situation, there are some basic themes that you may want to think about now.

Don’t Give Uncle Sam a free loan. The changes to the Federal Income Tax rules will mean predicting your 2018 income tax liability will be much more difficult than in prior years. In some but not all cases your tax liability may very well be lower than it has been in the past. Correctly determining the proper amount of withholding and potential estimated tax payments is more important than ever this coming year. Giving Uncle Sam a large interest free loan is not a good financial plan. Your money is always better off in your hands growing in your investment portfolio rather than sitting somewhere in Washington.

Reduce your income if you can. Although the new tax code does seem to reduce taxes, the ability to itemize and deduct certain expenses has also been reduced. For appropriate investors, municipal bonds can be an attractive way to reduce taxes on investment income. Those still in the workforce should make sure that they are taking maximum advantage of retirement plans (401(k), IRA, SEP, ROTH, etc.) to defer taxes on current income until after retirement.

Be proactive this tax season. For many of us getting our taxes done is a chore not an opportunity. We gather up our tax information and send it to our CPA or tax advisor and wait to be told what the results are. 2018 is a rare opportunity to take stock of where you are tax wise and make some real adjustments. Unlike past years, just tweaking your withholding or estimated payments and leaving everything else as it was is not a good tax strategy. The new Tax Act will change what you will pay in taxes next year and making smart decisions now can help produce the best possible financial results. This is definitely the year to take some extra time and review your income and expenses with your CPA or tax advisor.

First Merchants Private Wealth Advisors partners with individuals, families and organizations to provide comprehensive solutions and personal service in pursuit of a secure financial future for our clients. We would welcome the opportunity to be of assistance. 


David Forbes

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