Now that we’ve turned the corner into 2018, it’s time to start thinking about tax season. The IRS will begin accepting tax returns in late January, so now is a good time to start gathering the documents and information you will need to file your tax returns. Keep in mind that this year may be different due to the tax code changes passed by Congress in late 2017. You will want to read up on those and determine whether or not they may impact you and your taxes. If you are confused by the changes, you will most definitely want to speak with a tax professional before filing to make sure you’ve done things right. Aside from understanding tax code changes, you should also be receiving notifications this month regarding the availability of tax documents that are associated with any retirement accounts you may have. Don’t forget to check those documents to make sure they match up with everything. Nobody likes to think about tax season, but if you take the time now to prepare yourself, it will save you time and effort when you actually go to file.
The end of 2017 brought significant changes to the tax code as a result of the recent tax reform bill passed by Congress and signed by President Trump. How exactly those changes will affect the economy remains to be seen, but what is known is that it will have an impact on individual taxes. As with any significant tax code changes, you should take the time to understand how those changes may affect your retirement and estate planning strategies and plans. The most recent reforms widened the gap between state and federal taxes, which could have a huge impact on how much retirement money you may need to meet your current plans. Furthermore, there could be changes coming to Social Security, Medicaid, and Medicare in the coming years as a result of the legislation, which may impact how people plan to fund retirement. Now, especially around the beginning of the new year, is a good time to review your retirement plans and educate yourself on how the new tax reform will impact your retirement plans and whether you may need to change your strategies and goals.
It’s well known that the current tax reform legislation making its way through Congress can, and most likely will, impact your retirement accounts and plans. One target is regarding recharacterizations of Roth IRA and traditional IRAs, which both the House and Senate bills would do away with. Recharacterizations are important because it is one of the few tools available to correct a conversion. Under the current system, you have until October 15 of the year following the year in which you made the conversion to recharacterize it. This current system gives people time to reconsider and think about conversions and take steps to fix it. However, if that is done away with, people may be much more cautious with conversions. Furthermore, if these proposed bills are signed into law before the end of the year, the elimination of the ability to recharacterize a conversion most likely will happen sooner rather than later. Therefore, if you have been thinking about recharacterizing a conversion you made in 2017, you may want to do so before the end of the year or in the early part of 2018.
President Trump recently announced plans to overhaul the tax code and it appears that the proposed changes could have a resounding impact upon the middle class with the reduction of certain deductions. However, it could provide a few benefits, in particular for high net worth individuals who are planning on passing their fortunes to their heirs. While the tax reform is just a proposal at the moment, that doesn’t mean you shouldn’t read up about it and how it could affect your finances. Remember, if your taxes go up, the money required to pay them must come from somewhere, which could affect how much you save for retirement or your financial plans. It’s important that you educate yourself about these tax changes and understand just how it might affect you.