March 2018

How to Take Advantage of the New Tax Law

Author: Kent Thune

The passage of the new tax law is already old news, but its effects on your wallet are just beginning, which makes now a good time to take a closer look at how to take advantage of this new legislation. In addition to the new tax law, the stock market is returning to volatility and interest rates are on the rise. Therefore, the economic big picture for 2018 is painted with a colorful combination of optimism and caution.

However, the greatest impact on your finances in 2018 will be the new tax legislation, called the Tax Cuts and Jobs Act. But to make the most of the new tax picture, you’ll need to see more clearly what’s in it and how it will affect your finances.

The biggest change that the tax law brings is with the tax tables. U.S. income taxes are progressive, meaning that the tax rate increases as the taxable amount increases. For example, prior to the new tax law, tax tables started at a rate of 10 percent, then progressively moved higher to 15, 25, 28, 33, 35 and 39.6 percent, along with corresponding higher taxable income. Now the tax tables move progressively from 10 to 12, 22, 24, 32, 35 and 37 percent. In translation, most Americans are now taxed at a lower rate.

It’s also important to note that the standard deduction has nearly doubled. For single taxpayers, the standard deduction increases from $6,500 to $12,000 and the standard deduction for married couples filing jointly moves from $13,000 to $24,000. However, exemptions go away. This means that some taxpayers—those who normally have high itemized deductions and multiple exemptions—may not benefit by the higher standard deduction. This would occur if the new standard deduction, less the takeaway on exemptions, amounts to a lower deduction than the taxpayer had before. Therefore, some Americans, primarily those who live in states with high taxes like California and New York, may see a tax increase.

But most Americans will benefit from the new tax law. In fact, according to the non-partisan Joint Committee on Taxation, 80 percent of Americans earning $50,000 to $75,000 will see significant reductions in their taxes (the average cut will be about $850, according to the Tax Policy Center). Overall, about 62 percent of Americans will pay at least $100 less in taxes.

But how exactly does one take advantage of the new tax law? And is there anything you can do now to benefit? The first thing you need to do is pay attention to your pay stub. By mid-February, you should have seen an increase in your take-home pay. This is because the reduction in taxes translates into more take-home pay, and your employer’s payroll department should have made the adjustments to reflect the new tax law by now.

Although most Americans won’t see large increases in their pay, even small amounts can add up over time if you use them wisely. If your take-home pay increases by just $50 per month, and you put that in your 401(k), you’ll have over $26,000 in 20 years, assuming a 7 percent rate of return. And that’s not factoring in an employer match, if applicable.

To add more money to your paycheck, you may consider adjusting your withholdings on Form W-4, which you can get online or from your employer’s human resources department or payroll person. When adjusting your withholdings, remember that the more exemptions you claim on the form, the less money is withheld by the federal government (therefore more money in your paycheck now, rather than in a refund check later). To adjust your withholdings in the most beneficial way, you’ll get more in your paychecks and will receive either a very small refund or you’ll owe a small amount to the federal government next year. Online calculators can help to make the best adjustments for you.

If you have high interest debt, it’s generally wise to pay this down with your tax savings before increasing your retirement savings. So, if you’re getting more money in your paycheck as a result of the new tax law, consider decreasing your high interest debt first. When deciding between debt reduction or investing your money, reduce debt if the interest rate you are paying is higher than the expected return on your investment. If the interest rate is lower than your expected return, invest it.

Small business owners should check to see how the final tax law improves for so-called “pass-through” businesses, which include entities that don’t pay taxes at the corporate level, such as S-Corporations, Limited Liability Companies (LLCs), limited partnerships, freelancers, and sole proprietors. Qualifying business owners may deduct 20 percent of their income. But not all business owners will get the break. You may qualify for the 20 percent reduction if your income is less than $157,500 for single taxpayers and less than $315,000 if married and filing jointly. Taxpayers who have had large out-of-pocket medical expenses may be able to get a tax break. The new tax law lowers the threshold for deducting those expenses to 7.5 percent of adjusted gross income, compared with 10 percent previously.

With all the news of federal tax changes, you may have missed the new tax law happening at the state level. Starting in January, South Carolina taxpayers can save some dollars while fueling their vehicles at the gas pump. To offset the gas tax increase approved by the legislature in 2017, here’s what the S.C. Department of Revenue’s website says about how you can save in taxes while pumping gas:

• Only resident taxpayers are eligible.
• Taxpayers must save receipts from fuel purchases and invoices from vehicle preventative maintenance costs such as oil changes and new tires in South Carolina. Fuel purchased outside the state and maintenance done outside the state cannot be included. The credit cannot exceed the lesser amount paid for either the gas tax increase or the vehicle’s preventative maintenance.
• Fuel receipts or credit card statements must show the number of gallons purchased.
• Up to two private passenger motor vehicles can be considered for the credit. Motorcycles are included.
• Maintenance invoices must show the car model, amount, and type of preventative maintenance work performed in South Carolina.
• Taxpayers will calculate and claim the credit on Form I-385, which will be available in January 2019.
• For more information, visit the S.C. Department of Revenue website at

Finally, after completing your 2017 taxes, you can use the information to estimate your tax reduction for 2018. On page two of Form 1040, you can plug in the new standard deduction and take out the exemptions. This can be a good start. Also, speaking with a tax professional can give you a more accurate assessment of your overall tax outlook for 2018.

Kent Thune is a Certified Financial Planner® and is the owner of a Hilton Head Island investment advisory firm, Atlantic Capital Investments. He is also personal financial counselor to marines and other service members on Parris Island. Thune’s financial guidance has been published at The Motley Fool, Yahoo Finance,,,,, and his own blog at

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