If you are a physician or are in another high-earning field, you may be wondering how the new tax changes will affect your money. Here are three main changes that may affect you, and how to handle them:
Tax Bracket Reduction
First and foremost, your tax brackets have changed. If you earn between $200,000 and $600,000, you will see a 1-3% reduction of your tax bracket.
There is also a large discount for those who can get their taxable incomes below $315k. If you can get it below that threshold, the reduction is 8%. It’s very important to use whatever deductions are available to you, especially if you could get below that $315,000 amount.
Deductions have changed, so you can only deduct up to $10,000 of your property and income taxes. That means that if you live and work in high property tax and/or state income state and your mortgage is $400,000 or less, you probably won’t be able to itemize your deductions.
There is an upside to the deduction limits. If we look at the glass half full, those limits will make it less likely for you to be hit with the alternative minimum tax (AMT.) The new tax law also increases the exemption phaseout level to $1 million for joint filers and $500,000 for individuals, meaning a significant number of people will now be able to take advantage of those levels.
Finally, there are some interesting changes to 529 plans. You may have had a 529 plan set up for your child’s college education, but now you can use your plan to pay for private school, as well. This adds to the planning flexibility, so you don’t have to be as concerned about overfunding the plan.
You may want to think about super funding a plan when your children are young to free up some additional savings that can be allocated elsewhere.
Are you a New Hampshire resident? Read more about how the tax changes will affect you here.