Clients may be wasting one of the tax law’s biggest benefits: Tax Strategy Scan
Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.
You could be wasting one of the biggest benefits of the tax bill
Many taxpayers can expect a lower tax bill under the new law this year, and should consider adjusting their withholdings to put the extra money to good use, according to this article on CNBC. Clients can use the savings to pay off student loans and other variable-rate debt, increase their mortgage payment and add to their retirement plan contributions. "So many people reach retirement and still have a mortgage," an expert says. “Having any kind of serious mortgage in retirement really cripples your ability to do other fun stuff.”
Tax cut offers long lasting economic benefits
It is wrong to say that the rising stock buybacks are an indication that new tax law is failing, an expert at USA Today writes. "Although the gradual capital buildup spurred by the corporate rate cut is less exciting than an imagined investment splurge from a massive one-time cash inflow, it offers long lasting economic benefits," the expert writes. "Additional capital in the United States makes workers more productive and therefore more valuable to employers."
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Tax breaks every college student should know
College students and their parents should take advantage of the tax breaks available to them to minimize the hefty cost of education, according to this article from Business Insider. For example, the American Opportunity Credit allows college students to claim as much as $2,500 in tuition and other costs, and is also available to couples earning less than $160,000 and singles with income below $80,000. Taxpayers who incurred college education costs may also qualify for the Lifetime Learning Credit and deductions for tuition and fees, and student loan interest payments.
4 tax penalties to avoid at all costs
Clients are advised to avoid IRS penalties as much as possible, as these could mean substantial losses, according to this article on Motley Fool. Retirement savers should ensure that they don't make early retirement plan withdrawals, which are subject to a 10% penalty, while retirees should take their required minimum distributions from their retirement accounts on time. The IRS also imposes penalties on taxpayers who miss the tax-filing deadline and make late tax payments.
9 states with no income tax
Alaska, Florida, Nevada and New Hampshire are among the states that impose no state income tax to residents, according to Kiplinger. Americans in South Dakota, Tennessee, Texas, Washington and Wyoming don't also owe any state tax on their income. However, these states will need to impose higher rates in other tax areas to generate the needed revenue.