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When it comes to taxes and their effects, there are a multitude of strategies to fit individual circumstances. Yet, we can make some generalizations that address specific groups of people with varied tax and financial situations.
Knowing that you may want to work with an advisor to fine-tune any strategy, here’s a look at how the new tax law may affect different types of people.
TIP: Keep the unearned income at $2,550 or less annually, which is taxed at only 10%. If you’re giving minors investments to help build a college fund, consider opening and investing in a 529 plan under your name instead. Qualified distributions are tax-free and the plan, when owned by a non-student, has less of an impact on financial aid than accounts owned by the student.
TIP: Why not put that extra money you’re bringing home to good use? Put the extra cash into the aforementioned 529 plan for a child’s education.
New rules allow you to use it for qualified primary, secondary and higher education expenses, provided your state complies. Or consider pumping up your retirement funds by contributing more to a 401(k) plan at work or by opening and contributing to a traditional or Roth IRA (if qualified by income).
TIP: If all things are equal, definitely consider how taxes may affect where you look for work or for a new home. If it is a high-tax state, you may want to lower your state tax bill by deferring more income to qualified retirement accounts.
TIP: The estate and generation-skipping tax exclusion amount doubled to $22.36 million for couples and $11.18 million for individuals. Talk to an advisor if your taxable estate’s value exceeded the previous exemption but falls under the new one. Even if your estate exceeds the new exemption, remember that you and a spouse can gift up to $15,000 annually (up $1,000 from 2017) gift-tax-free to as many people as you like, lowering your taxable estate in the process.
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