Are you paying more in federal income taxes this year despite a promised tax cut? Across the nation over 8 million people fall into this category critically referred to in the news as the “Trump tax hike”. Here in New Jersey the situation is worse. By the next tax filing time in the spring of 2019, it seems probable that more than half of New Jersey residents will pay more in total federal taxes (federal income taxes plus federal trade tariffs passed on to consumers), not less. Upper middle class working people without dependent children are the most likely to pay more. Some critics say that the tax law was deliberately designed to hurt New Jersey for being so strongly opposed to the current administration’s policies and agenda. In fact, only one politician in the state voted for the tax reform bill and he is under fire by voters for doing so.
Two types of tax hikes in 2018
The Trump administration implemented two different types of tax hikes this year and so news reports are currently focused on the most recent taxes in the form of tariffs. Tariffs are a different type of tax. This article discusses only the federal income tax.
1 in 10 pay more
The so-called Trump tax hike hits New Jersey residents harder than those living in any other state. More than 1 in 10 New Jersey taxpayers are paying more federal income tax this year than in 2017, according to the Tax Policy Institute. Many don’t even realize the larger tax bill they will owe when they file their next tax return.
4 in 10 see no benefit
Only 6 out of 10 residents will see any noticeable tax cut and so the touted benefits of the Tax Cuts and Jobs Act will not benefit most of my upper middle class clients.
Still time for tax planning
There is still time to make adjustments to avoid some of the tax increases but only if taxpayers act quickly. I recommend these steps: 1) prepare a projection of 2018 taxes. This is easy if you work with a tax advisor. 2) If the 2018 tax is higher, identify the reasons for the increase. Some of these tax triggers can be managed, others are unavoidable. 3) Consider alternate tax reducing and tax shelter strategies. These vary from one taxpayer to the next but it is not difficult to brainstorm for a list of available tax saving strategies.
Minimizing taxes through legal strategies is an important part of lifetime wealth-building and, in the long run, play a larger role in your financial success than choice of investments or other variables.
* In other news reports the term “Trump tax hike” may refer to tariffs that are a different type of tax imposed by the president. This article discusses only income taxes.