1. Take the raise

Some people hesitate about taking a raise at work because they worry it will put them into a higher and more expensive tax bracket.

If this is you, you may misunderstand how tax brackets work. At any rate, there's no need to worry under the new tax law.

Hand giving some money isolated on white background
Odua Images / Shutterstock
There's no need to worry that a raise will put you in a higher tax bracket under the new law.

It cuts individual tax rates by a few percentage points at almost all income levels and raises the thresholds for these lower taxes, too. (The exception is income between $200,000 and about $425,000, now taxed at a slightly higher rate.) 

The biggest winners are people who make $500,000 or more, whose top tax rate has been cut from 39.6% to 37%.

So, if you’re offered a raise, your additional earnings will be taxed less than last year — and you might not even be bumped to a higher bracket. This translates to more money in your bank account. Yay!

Don't worry, you can still file on your own or with expert help. 30% of Americans who file electronically file with TurboTax.

Get Started

2. Reduce your withholding

Since your overall tax rate may be coming down, your employer won't need to set aside as much of your income for Uncle Sam. So adjust your tax withholding and boost your take-home pay!

w 4 tax form with pen on desk.
RomanR / Shutterstock
You may want to complete a W-4 and have even less withheld to compensate for your lower tax bill.

The Treasury has introduced new withholding tables to offer companies some guidance on how much to hold back from paychecks. But you may want to complete a W-4 and have even less withheld.

After all, if you're handing over too much money to the IRS, it's like giving the government an interest-free loan until you file your taxes and get a refund. Why not keep more of your money sooner, so it can work for you?

3. Invest in stocks with dividends

Though most changes in the tax law are temporary, it has cut the corporate tax rate from 35% to 21% permanently. Before the law passed, giant companies like Amazon, Apple and Walmart promised up and down that they'd use their millions in savings to invest in the country, employ more workers and “take care of shareholders.”

Money denominations on a background of the sky
iurii / Shutterstock
Dividends are like corporations raining down money on their shareholders.

How much these mega firms will do to help the little people (besides giving bonuses to employees) remains to be seen — but Bloomberg predicts they will almost certainly put a sizable chunk of their tax savings into dividends for their stockholders.

If there was ever a time to invest in stocks that pay out dividends (that is regular, usually quarterly, payments based on their profits), this is it.

Sign up for Credit Sesame and see everything your credit score can do for you, find the best interest rates, and save more money at every step of the way.

Get Started—100% Free

4. Become your own boss

If you work in a trade like construction or architecture or you’re a professional such as a lawyer or accountant, you could take advantage of a major tax break by starting your own “sole proprietorship” company or becoming a partner in a business.

Pretty young woman working on a start up business from a bright airy office at home reading information on her desktop monitor
Uber Images / Shutterstock
Start your own “sole proprietorship” company or become a partner in a business.

Though smaller businesses have their earnings taxed as individual income rather than at the often lower corporate tax rate, the new law allows entrepreneurs to deduct 20% of their qualified business income. However, your taxable income must be under $157,500 if you file taxes as an individual, or $315,000 if you’re married and file taxes jointly.

The deduction is available through 2025.

You don’t need employees to start one of the eligible small businesses; freelancers and contractors can do it, too. The only thing to remember is that if you’re employed full-time now, you might be giving up certain benefits (like health insurance) that you’d have to pay for out of pocket as a business owner.

5. Go expense happy!

The tax law has doubled the immediate deduction that small business owners can take when they buy equipment or property.

Through 2025, entrepreneurs can write off $1 million in these expenses, up from the previous limit of $500,000.

Young businessman with tablet at warehouse
Africa Studio / Shutterstock
You can write off more of the money you invest in your business.

If you’re considering starting your own business, this could be a great opportunity to enjoy a major — if temporary — boost in expensing.

6. Upgrade your kids' schooling

Under the old law, you'd open a 529 savings plan to save money for your kids' college. The money would be invested in stocks, mutual funds or certificates of deposit to grow it over time, and the gains were not subject to federal taxes. The funds would have to be used for qualified higher education expenses.

Kid traveling by airplane
Zurijeta / Shutterstock
The tax law allows you to use 529 savings to send younger kids on exchange programs.

Now, the new law has extended the 529 perks to apply to K-12 education. While this change gives private-school parents a tax break, it could allow any family to use 529 savings so their kids can enjoy summer enrichment programs, international exchanges and other valuable experiences before heading off to college.

To get maximum benefit from a 529 plan, LearnVest recommends that you: choose a lower-cost 529 offered by a state (rather than a broker); review and update your investment portfolio yearly; and start saving as early as possible.

Here's how to save up to $700/year off your car insurance in minutes

When was the last time you compared car insurance rates? Chances are you’re seriously overpaying with your current policy.

It’s true. You could be paying way less for the same coverage. All you need to do is look for it.

And if you look through an online marketplace called SmartFinancial you could be getting rates as low as $22 a month — and saving yourself more than $700 a year.

It takes one minute to get quotes from multiple insurers, so you can see all the best rates side-by-side.

So if you haven’t checked car insurance rates in a while, see how much you can save with a new policy.

About the Author

Esther Trattner

Esther Trattner

Freelance Contributor

Esther was formerly a freelance contributor to MoneyWise.

What to Read Next

Disclaimer

The content provided on MoneyWise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter.