The new tax law passed by the Congress in 2017 contains a number of tax reforms and cuts. The latest reforms can have a significant impact on the taxes and income of different factions of people in the country.
Corporate taxpayers had their statutory tax rate decrease to 21% from a figure of 35%. There have been significant reductions at the individual level as well.
People retiring in the current tax environment will have to plan in accordance with certain strategies.
- Taxpayers in states like California and New York are likely to take a hard hit with the new tax rules. According to the tax reforms, the state and local taxes are capped at $10,000 and this can prove to be difficult for people living in high tax states. It is better for taxpayers in such states to move to low tax states.
- It is better to convert a traditional Individual Retirement Account or IRA to a Roth IRA in order to take advantage of the tax-free income provided on retirement. While the contributions to a Roth IRA are fixed, retirees can make use of the tax-free returns on their investments provided the withdrawals are made only after the age of fifty-nine years and six months.
- Proper estate planning strategies need to be employed by business owners in order to lower the taxes according to the new bill. Under the new tax laws, estate taxes have been capped at $11.2 million per individual. This means that high taxpayers are likely to take a hard hit if they are not meticulous enough.
- Take help from financial advisers in order to find out the best retirement planning opportunities in order to increase retirement savings. Any decision related to the conversion of IRAs or other retirement portfolios in the current environment should be taken only after seeking proper advice from financial consultants.
- Donating a sizable income to charities after an individual reaches the age of seventy can prove beneficial. The amount will be accounted for in tax deductions and is excluded from the total taxable income.
Postponing income can have a positive effect on retirement savings.
The new tax reform is likely to help out corporations better than an average American.
Financial strategies must be carefully planned without compromising on retirement savings. One wrong move can result in a significant tax hit and itemizing deductions may prove to be futile.