Three Surprising Ways Tax Reform Will Impact Consumers

March 15, 2018

In 2017, Congress passed the largest tax reform legislation since 1986

Scott Beaudin, CFP, CPA/PFS, Chairman, National Association of Personal Financial Advisors Board of Directors

(Chicago, IL, Thursday, March 15, 2018) – In 2017, Congress passed the largest tax reform legislation since 1986. Virtually every American taxpayer will be impacted by the new law. 

As it goes into effect, individuals and businesses have many questions about what the changes mean for them, and there is a lot of confusion circulating about how consumers will be impacted.

The National Association of Personal Financial Advisors (NAPFA) has identified three surprising ways tax reform will impact consumers:

  • Withholding: Many consumers may have already noticed a bump in their take-home pay due to changes in withholding rates. According to the U.S. Treasury, paychecks are increasing for about 90% of Americans due to tax reform. However, consumers might be surprised to know that this increase in their paycheck could result in them owing the IRS more money when they file their 2018 taxes.
  • Child tax credit: Taxpayers with qualifying children under age 17 could benefit from a substantially increased child tax credit.
  • Home-equity loans: Taxes play an important role in home ownership. Unfortunately, tax reform curtails some benefits of home-equity loans and many consumers aren’t aware. Home-equity loans use a home as security or collateral and feature lower interest rates than many other loans. Under the new rules, home equity loans will be taxed differently.

Consumers often overlook the role taxes play in their overall financial plan. NAPFA surveyed its members about the most important things consumers should do 5, 10, and 20 years before retirement:  

  • 20 years before retirement: NAPFA advisors recommend consumers have a diversified investment portfolio by allocating assets across taxable, tax-deferred and tax-free sources.
  • 10 years before retirement: Be tax efficient with investments – for example, consumers should defer as much of their salary as they can to their defined contribution plans.
  • 5 years before retirement: Advisors recommend understanding the tax features of cash access for all accounts and knowing how to make the most of needed funds.

Tax reform offers an important opportunity to assess your current financial situation against long-term financial goals. Planners can help you ensure that you’re incorporating changes from tax reform into your overall financial plan. NAPFA has a find-an-advisor database to search for an advisor in your community.

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