The new law overhauling the federal tax code changes much of what you’ve learned over the years about how to minimize your taxes. To keep our readers from overpaying under the new rules, ­Bottom Line Personal asked tax and financial expert Greg Rosica, CPA, CFP/PFS, to analyze the details and how they might affect you. Most of the changes go into effect starting with the tax year that began January 1, 2018, and are set to expire at the end of the 2025 tax year.

Here are five important strategies you need to consider right away…


The new rules affect decisions about your retirement accounts and education expenses.

If you want to convert a ­traditional IRA to a Roth IRA, don’t do it all at once. Contributions to a traditional IRA typically are tax-deductible, but you pay income tax on withdrawals…while contributions to a Roth IRA are not deductible, but you don’t pay tax on withdrawals. Sometimes it makes sense to “convert” a traditional IRA to a Roth IRA by paying tax on the money converted. That’s because you’ll never have to pay tax on withdrawals from that IRA again, even as the assets grow bigger.

Under previous law, if you converted a traditional IRA to a Roth IRA and then those investments fell substantially in value, you could reverse the conversion and turn the Roth back into a traditional IRA—a process known as “recharacterization.” Then you could reconvert the traditional IRA to a Roth IRA with the value of the ­investments—and the resulting tax bite—lower than when you did the original conversion, thereby paying less tax.

The new rules eliminate this option to recharacterize, which makes converting a traditional IRA to a Roth IRA a riskier proposition because you will have to stick with it.

What to do: Without this do-over ­option of recharacterization, some people simply may decide to never convert a traditional IRA to a Roth. Instead of abandoning the idea, however, consider spreading out the conversion to a Roth IRA into equal portions over two or three years. That way, you could pay less tax on a portion of the converted assets if the value of those assets drops before you convert them.

One last chance: If you converted a traditional IRA into a Roth IRA in 2017, you still have until mid-October 2018 to undo your Roth conversion by recharacterizing under the old law.

Invest in a 529 college savings plan with an eye toward more than just college expenses. Under previous law, money from a 529 plan could be withdrawn tax-free only to pay qualified college-related expenses. Under the new law, you can withdraw up to $10,000 per child each year tax-free while a child is in grades kindergarten through 12 to pay ­tuition for private or religious school or to pay for expenses involved in home schooling.

What to do: Start a 529 account right away if your child or grandchild is attending or may enroll in a nonpublic school. Also consider funding a 529 if you have a disabled child. The new rules allow you to roll 529 assets into ABLE accounts—tax-advantaged savings accounts for individuals with ­disabilities.


Tax treatment of homes under the new law might have a big impact on which home you purchase…as well as loans you take out using the equity in your home as collateral.

Reevaluate whether you want to buy that big, expensive home. Unless you are paying cash, one of the factors that goes into evaluating whether you can afford a home is your ability to deduct the interest payments on your mortgage. In the past, you were able to deduct mortgage interest on up to $1 million in debt.

A new rule, which applies to mortgages issued on December 15, 2017, or later, allows you to deduct interest on only the first $750,000 of mortgage debt. Example: If you take out an $850,000 mortgage, you can deduct a prorated amount of the interest you pay each year—about 88%—over the life of the loan. (This rule includes a “qualified residence” such as a motor home or boat in addition to your primary residence.) Related: The interest on home equity lines of credit (HELOCs) and home-equity loans, a relatively cheap form of borrowing, used to be deductible on loans up to $100,000 even if you didn’t use the loan for home improvement. But starting with the 2018 tax year, home-equity interest will no longer be deductible unless the loan is related to home improvement or acquiring or building a home.

What to do: Consider buying a less expensive home or trying to reduce the size of the mortgage by increasing the down payment. Also, before you take out a home-equity loan, calculate the cost of doing so if there is no tax deduction on the interest you pay.


The new law attempts to get more taxpayers to take the standard deduction rather than itemizing. But this might cost you money.

Even if you have itemized in the past, you and/or your accountant should run scenarios to see whether it makes sense to continue itemizing. About one-third of US taxpayers have typically itemized, but under the new rules, that number could drop to as low as 5%. That’s not just because the new law nearly doubles the standard deduction to $12,000 for single taxpayers and $24,000 for joint filers, but also because it eliminates or caps some popular deductions that taxpayers itemized in the past.

Examples of changes: In addition to the changes described above, there now is a $10,000 cap on deductions for state and local taxes that are paid starting in 2018, which can include any combination of property, income and/or sales taxes. And deductions are no longer allowed for unreimbursed employee expenses…tax-preparation expenses…moving expenses…or fees that you pay to an investment adviser or money manager. And for alimony agreements or decrees that start after December 31, 2018, the alimony you pay is not deductible.

Certain other deductions now have much narrower eligibility. One temporary bright spot: Just for tax years 2017 and 2018, medical expenses in excess of 7.5% of your adjusted gross income are deductible (down from 10% in previous years). But in 2019 and beyond, that threshold returns to 10%.

What to do: Don’t assume that you should itemize for the 2018 tax year and beyond even if you have a lot of deductions that still are allowed (such as charitable contributions and student loan interest). Add up all your allowable deductions to decide whether they still save you more than the standard deduction.


You may not think of yourself as a “business,” but you might qualify for a business deduction under the new tax law.

Consider becoming a pass-through entity. Certain kinds of businesses get big tax breaks under the new federal tax law…and if you currently are an employee, you might be able to get a slice of that tax-cut pie yourself by technically turning yourself into a business.

Background: Many small-business owners and other individuals who don’t work for employers (such as freelancers and independent contractors) operate as pass-through entities, which can be in the form of a sole proprietorship, a partnership or a limited liability company (LLC). That means they earn income not in the form of a salary but as a profit distribution.

Under the old tax law, pass-through entities were taxed the same way as employees of a business—based on individual income tax rates.

The new law, however, generally ­allows pass-through entities to take a deduction on 20% of their taxable income. For example, if your total annual income lands you in the 24% tax bracket, you would pay that 24% rate on only 80% of your income and pay no tax on the other 20%. There are some restrictions on the kinds of ­businesses eligible for the full deduction, but most pass-through filers qualify for the full 20% deduction as long as their taxable income is less than $157,500 (or $315,000 for joint filers). Above that, the deduction typically phases out.

What to do: If you are a salaried employee, it’s worth exploring whether you can pay less tax by becoming a pass-through entity and working as your own business. To do so, you file paperwork with the state where the business is based and pay a fee.

Of course, you need to factor in the drawbacks of such a move. For instance, if you operate as a sole proprietorship, the simplest and most common type of pass-through entity, you’re responsible for paying for your own health insurance and you are personally liable if your business runs into financial trouble.

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