For many Americans, the implementation of the new tax cuts means more take-home pay. And while some of you will be disciplined about saving the additional income, others will succumb to "lifestyle creep," where you buy more things because you can. I'm calling on each of you—pleading with you—to be vigilant about saving more than ever before.
Why? First, the new tax plan is extremely confusing. While some may see more take-home pay, it may be offset significantly by the $10,000 cap on the Federal deduction of state, local and property taxes. Before you see your accountant, take a look at Schedule A on your 2016 tax return. Look at the deductions you took for state, local and property taxes and compare it to the $10,000 cap.
Second, there is much in the new tax plan that still needs clarification. We truly won't know how this plays out until the calendar year is over—and then it may be too late to make adjustments. When you see your tax advisor, discuss whether it makes sense in your situation to make estimated tax payments throughout the year, or if you are self-employed, to make higher estimated payments.
Third, instead of letting extra money slip through your fingers, why not add to your savings? Make sure you are maxing out on retirement plan contributions. This year, the limit on 401(k) contributions has increased by $500, from $18,000 to $18,500. Or use the money to boost your investments instead of buying a new phone or flat-screen TV.
You should incorporate tax planning into your budgeting to ensure you don't spend money you don't really have or miss an opportunity to improve your finances for the long-term. Please don't let that lifestyle creep get in your way. Let us help you.