New year provides opportunity to review finances


The new year has dawned upon us. The past year is a memory, and the new year offers new and exciting opportunities. Many see a new year as an opportunity to make new resolutions. In some situations, this allows one to reevaluate past personal financial decisions and to make any appropriate changes for the upcoming year. This new year is no different.

There are some unique circumstances for this new year. December was an active month for the tax legislation debate and just days before the holidays began, the final legislation was enacted with some provisions effective for the 2018 tax year for individuals and businesses. The impact of these changes is being evaluated by many and may require some actions to maximize the benefit or mitigate any negative consequences. These tax changes should be considered in any personal finance decisions that are often updated on an annual basis.

When the tax legislation was enacted in December, I had a copy of the final conference report in my briefcase and pulled it out one night before Christmas. My teenage children, who do not have a full appreciation for the gravity and scale of the tax reform legislation, questioned me on why I was reading a document that was hundreds of pages. It made their high school reading assignments seem simple when compared to the hundreds of pages of tax law changes in the reform legislation documents. I went on to explain the magnitude and importance of the legislation and referenced 1986 and that ground-breaking tax reform legislation. I was early in my career when the Tax Reform Act of 1986 was enacted, so I tried to share with my children the importance and impact of the 2017 tax reform legislation. My children rolled their eyes as teenagers often do and went back to using their electronic devices.

For those of us who are directly impacted by the changes enacted in the tax reform legislation, we can’t just retreat to our electronic devices and carry on life as usual. Change brings opportunity. There may be several personal finance opportunities to consider with the new year, and the tax reform changes make it even more important to review and update certain items in our own financial situations.

The new year is an appropriate time to review salary and wage withholding. Updating one’s Form W-4 (Employee’s Withholding Allowance Certificate) withholding elections may assist in better management of withholding and the number of tax refunds when tax returns are filed. As a result of the recent tax reform legislation, there are changes that may impact one’s personal income tax situation and therefore a review or one’s salary and wage withholding may be in order. The changes in standard deductions, the elimination of personal exemptions, the increase in child credits and the limitation on the deduction of state and local taxes are some of the items that may require changes in withholding. If adjusting any federal withholding tax items, also consider any state and local adjustments that should be made. As with any tax planning, any Form W-4 changes should be done with careful consideration and discussion with one’s tax adviser.

The recent tax reform also changed the available interest deduction rules for home equity loans. The change may impact anyone that currently has a current home equity loan outstanding. There is no grandfather provision available to existing home equity loans. Those who have home equity loans in place will need to consider the impact of this change.

The impact of tax reform may provide additional savings opportunities. Savings in an environment of consumer spending often is difficult. This is especially true of savings for higher education. Many parents and grandparents start early in the life of their children and grandchildren to set aside funds for the day of when higher education begins. Savings for higher education has been a priority for many. Many have used Section 529 college savings plans as a vehicle for college savings. They have been attractive for a number of reasons.

In the past, Coverdell Education Savings Accounts also have been used by some, and these accounts can be accessed for certain elementary and secondary school costs. Section 529 plans were more restrictive in the past and only allowed for higher education costs. This has changed. Included in the tax reform legislation is a provision that allows for withdrawals from Section 529 plans for elementary and secondary education. Many of our readers have children or grandchildren in private schools. Starting in 2018, there is the ability to access Section 529 plans for private school qualifying tuition and related costs (up to a $10,000 annual limit). This recent change allows families additional options in education savings. Many states offer a deduction for state income tax purposes for the funding of particular Section 529 plans. Reviewing the benefits and consequences of using Section 529 plans for any level of education savings and funding should be done with the appropriate adviser.

The performance in retirement accounts was a banner year for many in 2017. The record highs in the stock market provided significant gains for many, if not most, account owners. The IRS announced in late 2017 that the annual contribution limit for 401(k) accounts has been adjusted for 2018 to $18,500 from $18,000 for those under 50 years old. For those aged 50 and older, an additional catch up contribution of $6,000 is permitted. The new year is a good time to revisit one’s 401(k) deferral elections. There are some specific rules with respect to the ability to make elective contributions and one may want to consult with their retirement and tax advisers before making any changes.

There are other items unique to our own situations that can be reviewed and modified as we start the new year. I have only addressed a few of many that may be applicable to one’s fact situation. We have experienced many cold winter nights in recent weeks. Taking some time on one of those cold winter nights to review one’s financial situation and the items that may impact it for the upcoming year may yield tangible benefits in the current and future years.

William Roth is a tax partner with the local office of international accounting firm BDO USA LLP. The views expressed above are the author’s and not necessarily those of BDO. The comments are general and not to be considered specific tax or accounting advice or relied upon for the purpose of avoiding penalties. Readers are urged to consult their professional advisers.

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