Written By: Marissa Waldron, CFP®

It’s hard to believe it’s been over five years since the Tax Cuts and Jobs Act (TCJA) took effect, which means we only have three years left until the changes it brought expire. The TCJA was a major piece of legislation signed in by President Trump that affected people differently based on their individual situations. Most notably, it lowered Federal tax rates across the board and pretty much everyone has been paying less in taxes. These lower rates are set to expire at the end of 2025 and revert to the old 2017 rates, unless new legislation passes. As the budget deficit increases, most experts agree that taxes will only go up from here.

How sources of income are taxed differently:

While working, it may feel like you don’t have any avenues for reducing the taxes you pay. You make what you make, and you pay taxes on it. However, where you save your money can have a big impact on the taxes you pay, both now and in the future. You can contribute to pre-tax, post-tax, or taxable accounts, and even move money between those types of accounts to maximize efficiency.

In retirement, you may have different types of income that are taxed in distinct ways. For example, Social Security may be partially (or mostly) taxable if your “provisional” income is above certain thresholds. Dividends and capital gains often get a preferable rate if they meet particular requirements. With pre-tax 401k and 403b distributions, the full distribution amount will be taxed at your ordinary income rate and Required Minimum Distributions (RMDs) must start at age 73. Pensions are usually subject to ordinary income tax rates. Roth IRAs or other after-tax distributions are generally tax-free if requirements are met. These are just a few examples of common income sources, though there are others with their own unique tax treatment. 

What can you do about it: 

Whether working or retired, there are probably ways you can take advantage of today’s rates and be more tax-efficient with your money. For many, taxes are their largest expense. Everyone needs an INCOME TAX PLAN. That’s why we include it in our EPIC5i™ planning process for our clients. A tax plan is developed by analyzing your financial situation along with current tax laws, in order to pay the lowest tax over time.

Say What?

Most states have a state nickname, state flower, or even a state insect. But a state smell? New Mexico legislators are considering legislation to recognize “roasted chile” as the official state aroma. The proposal came from a fifth grade class in New Mexico, and it goes hand in hand with the chile being New Mexico’s state vegetable. 

This week in history

1945 – The US flag was raised on Iwo Jima, and the iconic image was captured by photographer Joe Rosenthal. 

1980 – US hockey team beats the Soviet team in the “Miracle On Ice.”

1980 – The first (and only) Best Disco Recording was given to Gloria Gaynor for “I Will Survive.” After years of disco dominating the musical landscape, the National Academy of Recording Arts and Sciences gave the green light for a new Grammy Award for the genre, just as the musical style was preparing to die. 

If you have any questions, we’d love to chat! Call us at 844-CARLSON (844-227-5766) today!