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The recent tax reform bill has introduced significant changes, potentially impacting individuals. Whether these changes result in a boost in your paycheck or an increased tax liability depends on various personal factors. To adapt to the new law, consider these steps:

Step One: Run a tax projection

Calculate how the new legislation will impact your taxes by using online tax projection calculators. These tools help estimate your 2018 tax return, considering the significant changes introduced in the law. For a more detailed assessment, consult your accountant for a pro-forma tax projection.

Step Two: Update your tax withholding

As new forms and guidelines take time to emerge, keep your withholding allowances unchanged for now. Once updated guidelines are available, consider adjusting your withholding allowances accordingly to reflect changes in tax rates.

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

With the elimination of tax incentives for employer-subsidized commuting expenses, if you’ve been benefitting from this, increase your contributions to your commuter account to maintain pre-tax contributions (maximum $255/month).

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

Review the impact on mortgage interest deductions concerning primary and secondary homes, particularly noting the change in the deduction limit to $750,000 for primary residences bought after December 15, 2017.

Step Five: Review the Roth/pre-tax decision

Evaluate whether contributing to a Roth 401(k) or IRA is more beneficial based on your income tax rate and the new deduction cap for state and local taxes (SALT) of $10,000. Use online calculators to compare options once new rates are integrated.

Step Six: Rethink home equity loans

The suspension of interest deductions on home equity loans unless used for substantial home improvements makes such loans less tax-efficient. Reconsider taking out home equity loans and prioritize paying off existing ones.

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

Previously, unpaid 401(k) loan balances became taxable and incurred a 10% penalty when leaving a job. Under the new law, there’s a window until the April filing deadline to contribute the unpaid balance to an IRA to avoid taxes and penalties.

For further insights into individual tax implications from the bill, especially if your income situation is complex, consult a professional tax advisor.

Source: Cynthia Meyer

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