Just to give you a little snapshot of why it’s taking so long to get tax reform done (and I know — you’re surely waiting with bated breath), consider this: under certain circumstances with the proposed reform, some people would face a marginal tax rate of over 100%.
The WSJ did the analysis over the weekend, and it is correct by my reckoning.
Which, of course, is exactly the sort of thing I was referring to last week when I said that the prospect of diving into the new laws and finding savings is “appetizing” for someone like me. Because even if the law passes as currently formulated (and remember, nothing is yet passed), there are ways that those same people who might face 100+% tax rates could pay much LESS tax.
But only if they have a pro in their corner.
For instance, I’ll offer you this piece of advice: It looks pretty certain that you’re not going to be able to deduct your state and local income taxes in 2018. Both the House and Senate bills kill this deduction.
This means that if you can find a way to pay (or even overpay) your state and local income taxes NOW, before the end of 2017, you will be able to deduct them from this year’s taxes. But you almost certainly won’t be able to deduct them next year (even for tax payments that are “assigned” to previous years).
That’s just one example of not letting these things just “happen” to you.
Too many people in Connecticut opt for the status quo ante approach, which, when it comes to taxes, can often mean trusting a piece of software to spit out the right numbers and somehow magically find all the right deductions for their specific life in the real world. A piece of software won’t be able to tell you things like I just told you, and at the right time.
Or it can mean purchasing something that you “just have to have”, because that’s what you’ve always done or because that’s what you see “everyone” around you in Connecticut doing.
If 2017 has taught us anything, it should be that this is not the age in which conventional wisdom is always right.
So, here are some other pieces of conventional financial wisdom that may NOT be right for you.
Conventional Financial Advice May Not Always Be Best by Emelia Mensa
“A bank is a place where they lend you an umbrella in fair weather and ask for it back when it begins to rain.” -Robert Frost
You can find lots of advice in Connecticut on handling your finances, but not all of it is valid for everyone. That’s why it’s always helpful to have someone who can speak into your specific situation. Because we shouldn’t just assume that the following “rules” are always true…
1) Always invest for the highest return.
High returns frequently involve higher risks, as well as bigger fees. You may be better off seeking safer, more conservative investments, even if they don’t produce as much in the short run.
2) Homes are always good investments.
You may think that renting is just throwing dollars down the drain, but remember that homes can be an expensive proposition, with high transaction costs, and constant maintenance expenses. You may save more money by renting until you can better afford a house of your own.
3) Avoid debt at all costs.
Generally speaking, Dave Ramsey is usually right when it comes to financial principles. And you should certainly avoid overextending yourself. However, some debt can be useful when buying a house (when that’s appropriate — see above), or in certain business situations. Just be sure you can comfortably manage it, and pay it off on time, and with as little cost as possible.
4) Sell when your stock is high.
What goes up must come down, right? But you want high-performing stocks in your portfolio at all times, so resist the urge to cash out just because a stock has reached an all-time high. Otherwise, in time, you could end up with a bundle of low-performing investments.
5) You can do everything yourself.
You can trade your own stocks if you want, but you’ll often do better working with a good financial planner from Connecticut. And you can prepare your own taxes, but, well, as I think you probably understand, it’s better to work with someone who knows the system like the back of their hand.
We pay attention to this stuff so you don’t have to. And we’re in your corner.
Emelia Mensa CPA