Trump Tax Cuts: 4 Ways to Leverage Your Bonus or Pay Raise
President Donald Trump is the 45th person in our nation’s short history to occupy the White House, the first business man to successfully win a national election, but also the most controversial POTUS in the modern era. Trump attracts strong emotional responses from all voters whether the debate is about immigration, trade, healthcare, energy, or the media.
Shortly before the end of 2017, Trump along with the Republican led Congress passed legislation to significantly restructure the federal tax code, some even argue (including Trump) that it may be the largest tax cut in history. But like most political issues, the devil is in the details.
Nevertheless, the bill did reduce individual tax rates in all seven brackets, doubled the standard deduction, reduces a wide range of itemized deductions, doubled the child tax credit, adjusted the famed alternative minimum tax, expanded the 529 deduction, doubled the estate tax exemption, and terminated the individual mandate requiring all taxpayers to buy health insurance or pay a stiff penalty.
Business owners also won “bigly” in the new tax bill – the corporate tax rate reduced to 21%, capped taxes on pass-through income, accelerated depreciation for capital investments, moved to a territorial federal tax system, and improved the net operating loss provisions.
Passage of the GOP tax bill led to applause on the right and grumbling on the left – which is a common reaction in Washington. But for many workers they felt benefits almost immediately with more cash available to take home. Not to mention nearly 200 companies have announced pay raises, bonuses, and increased benefits – all citing the new tax law as the impetus.
For example, Walmart increased its minimum wage rate for hourly employees in the U.S. to $11, expanded maternity and parental leave benefits, and provided a one-time cash bonus of $1,000. On the other hand, Starbucks gave domestic employees pay raises, company stock, and more benefits.
So if you’re one of many hard working people receiving wage hikes, company stock, or bonuses – then here are some helpful tips on how to effectively leverage your recent windfall.
- Pay Yourself First – too often we are hyper focused on paying bills, buying gifts, and taking care of everyone that may be pulling and tugging on us. But once I had my first job at 15 years old, my grandfather taught me the importance of paying yourself first, he stressed that I always need to put a little money away from every check. Instilling that discipline in me is how I learned to save for what I most wanted.
- Start an Emergency Fund – so you just received a $1,000 cash bonus, fight the urge to buy that new flat screen TV, furniture, clothes, or the multitude of “stuff” that has captured your interest. Instead opt to start building the emergency fund that you have been putting off. It’s financially healthy for you to have around 3–6 months of living expenses saved in cash. Start now!
- Get Rid of Debt – consumer debt such as car loans, credit cards, and student loans can be a real drag on your wealth building capacity. Use some of your newfound earnings to retire some outstanding balances. Start with your lowest balance, pay it off first, then move to a higher balance – you’ll feel a surge of confidence as the debt melts away.
- Put your Money to Work – investing your money in the stock market, real estate, or even a new business is the best course to financial prosperity. Money loves to work and grow, but you must place it in the correct environment for that to happen.
Mastering money and building wealth require focus, determination, and self-discipline – but also the right strategies can make a significant difference. It’s my life mission to help others discover principles that unlock the door to financial freedom. Contact me with your questions and good luck on your journey to financial peace.