By now, you must have heard that the new tax bill passed both houses and is sure to be signed by the President. But what opportunities does the new tax bill have for you? Well, from a tax standpoint it depends. The impact of the tax bill is different for individuals depending on their tax bracket. For example, if you have children and are not in the top tax bracket, you may still qualify under the new tax bill for your $1,000 child tax credit. Or, if invest a lot in stocks, the new tax bill will allow you to still get your qualified dividends taxed a favorable 15% tax rate. But the main impact of the new tax bill that will affect all taxpayers is the reduction in social security withholdings. I don’t recall Congress passing a tax bill like this in the 30 plus years I have been preparing tax returns.
However, since the tax bill is throwing social security gift to you, you have an opportunity for some cash flow or retirement planning. You can start 2011 by paying down the credit cards that have accumulated over this economic downturn with your extra cash. Likewise, you can increase your retirement contributions by your savings. The trick in cash flow is to live within your means, and if you are not careful, you may squander your tax bill savings. Opportunities like this do not come along often, so use it to your advantage by planning.
Discuss your situation with your tax professional before making any decisions.
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