Income taxes, for most people, is by far the largest expense you will have in your lifetime. It dwarfs what you will pay on your mortgage, your healthcare costs, all of those things. And as you may be aware, you’re likely to see changes to your income taxes next year.

In December, The Tax Cuts & Jobs Act of 2017 was signed into law. In order to save on your income taxes, you do need at least a surface level understanding of the new law. And I’ll be honest, much of what has been covered in the media has been fairly basic: “Oh, tax brackets went down just a little bit and the standard deduction changed.” But there’s a lot more to it than that.

How do state and local taxes work? How do mortgage deductions work? If you’re over age 65, how do you make sure that you get additional deductions that are allowed on your standard deductions? There’s a lot in the new tax bill that people don’t understand or may not even be aware of. The biggest issue is not just understanding the new tax bill, it’s how to take the new tax bill and do effective tax planning moving forward.

This time of year is typically when we do tax preparation. However, the numbers from 2017 have already happened. There’s very limited things that a CPA can do to save you on your income taxes that you have to file, if you haven’t already. The 1099’s, the W2’s, all the documents have already been generated, they’ve already happened, and you can’t put them back in the box.

Tax planning, by contrast, looks forward at what you can do now to save on taxes, as well as what you need to be aware of in the future to save on taxes. It looks at how you can use provisions of the new tax bill to your advantage. When it comes to things like mortgages, state and local taxes, charitable contributions, if you’re under 65, there should be a lot of planning and timing on how you effectively do it. People talk a lot about lost harvesting on investments, where you intentionally create a loss to be able to use on your tax return in a smart way from an investment perspective. There’s also gains harvesting, which is not talked about very much. It examines how you can intentionally create a taxable event. Especially if you’re already retired and are not 70 yet, you may want to trigger some taxable events in a 0 percent tax bracket for long term capital gains. With tax planning, you can take advantage of many opportunities.

If you’re interested in learning more about the new tax bill, I have published a very simple guide: A Review of the Tax Cuts & Jobs Act of 2017. It goes over essential points so that you have a basic understanding of how this new law works and how it could affect you. In it are charts and visuals to break down the differences between 2017 and 2018 taxes. Click on the link to request a copy and we’ll email a PDF to you.

The important thing, though, is once you know the basics, what you do with this information. You need effective tax planning. How can you have a comprehensive financial plan if you don’t have a plan to manage your income tax?