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FINANCIAL UPDATE
By: Craig J. Ferrantino CWS®, Certified Financial Fiduciary®, Craig James Financial Services, LLC
TAX CUTS AND JOBS ACT OF 2018 FOR DETECTIVES
Did you get a smaller tax refund this year? It appears that millions of tax filers are in the same boat. What happened? The Tax Cuts and
Jobs Act of 2018, the first major overhaul of the tax code in over 30 years, was voted in and the federal tax rates were recalculated with
the February 2018 paycheck. The middle-class 28% federal tax bracket was lowered to 22% and as a direct result, more money ended
up in your pocket. Some noticed a few extra bucks in each paycheck, others too busy to check. However, when people filed their tax
returns for the April 2019 deadline, many are finding much smaller refunds, and it made the news. Why lower refunds? The reduced
refunds are primarily due to the fact people saw a raise over the course of the year and so the federal government gave less back at the
end of the year. Now, if you still like getting a large refund for the sake of getting a large refund when you file your taxes, I would suggest
calling P&A and let them know you want to change your filing status to “Single, no dependents.” That would guarantee that you would
get the most federal employment taxes withheld from your check. However, if you actually are single, with no dependents, then you are
out of luck as you are getting the most federal taxes withheld.
A second culprit in your reduced refunds for 2018’s tax returns might be the SALT, or state and local tax deduction which is now capped
at $10,000. Until the new If you lived in Levittown and your property taxes were $14,000, you could write off the entire $14,000 on
your federal return. A direct effect of the new tax legislation is the cap at $10,000, so that extra $4,000 can no longer be deducted on
your federal tax return and returns as taxable income. A raw calculation at 22% tax bracket of $4,000 in extra income would mean $880
less in your federal tax refund. The news of late is that many properties are being reassessed and the amount due each year to pay your
required property taxes seems to be going up, not down.
A positive impact from Tax Cuts and Jobs Act of 2018 is that everyone who files gets a $12,000 federal tax deduction, or better yet, a
$24,000 if you are married and filing joint federal tax returns. I mentioned at one of my NCPD Detective presentations that it is a good
time to get married and people laughed, but the changes in the new tax law now back me up. On your 2017 tax return you may have
had miscellaneous itemized deductions for uniform cleaning, bullets, union dues, and the like. For 2018 the blanket deduction now
eliminates the need to itemize these common law enforcement expenses, making tax returns less complicated.
Another change in the TCJA of 2018 is how Section 529 plans are used. A 529 plan is a tax advantaged savings vehicle designed to encourage
saving for future education costs. The big change here is that you can now use these plans to pay for K-12 education, and not
actually wait to use your savings for college expenses. To refresh your memory, 529 plans offer tax-free earnings growth and tax-free
withdrawals when the funds are used to pay for qualified education expenses. So the news is that 529 Plans can now be used to pay for
a private K-12 institution like Chaminade High School or even a Montessori kindergarten class.
You might have heard that here are now limits on home mortgage interest deductions. Under the old law the mortgage debt limit was
$1 million for married filing joint returns, and the deduction for home mortgage interest debt limit is $750,000. Current mortgages are
grandfathered in as long as you closed before April 1st of 2018.
Child tax credits are doubled to $2,000 per qualifying child, and are refundable up to $1,400, meaning that if you don’t owe any taxes,
you can still collect $1,400 from the federal government. There is also a $500 deduction for qualified dependents who are not under the
age of 17, so a mother-in-law living with you can possibly help you qualify for this deduction.
These are the most salient changes in the tax laws affecting those who work in law enforcement. Putting it all together, when I asked our
in-house CPA Megan Muccio about the many returns she filed on behalf of clients, she shared with me that for most of the returns we
have done, people have kept more of their money. That is good news!
The bad news is that the TCJA of 2018 expires in 2025, giving us less than 6 years to make to take advantage of these significant tax law
changes. It may be sooner if you listen to the rhetoric on the presidential campaign trail, which with all new ideas come more taxes to
pay for these ideas.
The Tax Cuts and Jobs Act of 2018 is a great opportunity to make yourself less tax toxic in the future. With careful, individualized
financial planning, and this is where the hard work is, I want to take advantage of possible opportunities to draw down your portfolio
both now and in retirement in the most tax-efficient manner possible, and manage the investment portfolio in a way that produces the
highest after-tax return. It is not what monies you earn, but what you keep in the end.
Craig James Financial Services is located at 510 Broadhollow Rd Ste 208, Melville, NY 11747. Securities and investment advisory
services are offered through NEXT Financial Group, Inc, member FINRA/SIPC. None of the named entities are affiliated.
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