5 Tax Tips to Take Advantage of Now
Think it’s too late to do anything to minimize the impact of taxes on 2018? Think again. You still have time to take advantage of some strategies that can make the upcoming tax season less of the stressful nightmare you’re used to and one that will make you feel you’re putting your best financial foot forward for 2019.
- Contribute NOW to Retirement Accounts
If you haven’t already maxed out on funding your retirement accounts, you still have time to do it. The deadline for making contributions to traditional IRA’s and Roth IRA’s is April 15, 2019. If you have a Keogh or SEP and file for an extension (until October 15th) than you can wait until then to make your contributions. However, don’t treat the extra time as an excuse to dawdle. You want to start compounding that tax-free interest as soon as possible, so sooner rather than later is the name of the game here.
Another great perk to maximizing your retirement contributions? Lowering your 2018 tax bill by reducing your taxable income. It’s a great financial move all around. Remember that for 2018, the maximum IRA contribution is $5,500 (adjust that to $6,500 if you were 50 or older at the end of 2018) and the max contribution to your SEP or Keogh is $55,000.
- Make a Final Estimated Tax Payment
If you weren’t “paying the piper” enough out of your regular paycheck throughout the year, Uncle Sam might have his hand out for his share come April 15th, and it could be a staggering sum to come up with all at once. According to the IRS, you must pay 100% of last year’s tax liability or 90% of this year’s tax to avoid having to pay an underpayment tax. A quick band-aid solution? Make a last minute tax payment. You have until January 15th, 2019 to do so, and even a relatively small amount can help offset the proverbial hammer from landing on you come April. One word of caution though: make sure you don’t OVERPAY. It’s always better to owe the government a little something rather than expect a refund, particularly when you remember that overpaying taxes is essentially providing an interest-free loan to the government.
- Get Your Records Organized NOW.
While being organized at tax time may not cut your tax bill, it will keep you from that d dreaded “under the gun” feeling that comes from procrastinating until April rolls around. Taking small amounts of time to get on top of your records now will minimize your tax prep time investment, and will also help avoid the need to file an extension or the possibility of entering into a tax payment plan with the IRS (which will include a financing charge you don’t need). Start a folder now with 2017’s tax returns included, and start putting all the information that comes in the mail (such as W-2’s, 1099’s and mortgage interest payments) into the folder as well. Gather your receipts and get the information from your broker for any stocks or funds you sold now too. In doing so now, you’ll be surprised how relaxed you feel come spring, and the value of that feeling can’t be measured.
- Start Itemizing Your Deductions
WIth the new deduction limits set forth in The Tax Cuts and Job Act, you might make the assumption that it’s easier to take the standard deduction, and you might be right, but if you start itemizing now, you may find that you have more deductions than you think. 2018 raised the standard deduction level from $6,500 to $12,000 for individuals and from $13,000 to $24,000 for married couples filing jointly. While this dramatic increase means many people will end up taking the standard deduction, it’s important to make sure you’ve considered every possible deduction available to you. If you’re self-employed or live in a high-tax area, those deductions can add up, and don’t forget deductions like medical expenses that exceed 7.5% of your AGI. Also, make sure to gather all your records of charitable donations, including all those trips to Goodwill after you cleaned out your attic, and all those times you put cash into a collection can at the gas station.
- File and Pay ON Time and File Electronically
Filing and paying ontime not only means that you can wash your hands of this year’s taxes, but it also means that you avoid the possibility of the IRS hitting you with a late filing penalty, which can add up quickly (4.5% per month of the taxes owed AND a late penalty of .5% per month of taxes due.) If there is no way you can file and/or pay on time, make sure to file an extension (Form 4868) by April 15, 2019. Doing so keeps you from having to pay these costly penalties, and keeps you in good standing with the IRS, something that’s ALWAYS a good idea.
Filing electronically also has numerous benefits. The IRS not only processes electronic returns much faster than paper ones, it also checks your returns to make sure they are complete, which greatly increases ensuring you’ve filed an accurate return and won’t have to deal with the delays involved in having an incomplete filing. Another “peace of mind” benefit to filing electronically is that the IRS sends an acknowledgement that they have received your return. And finally the best benefit to filing electronically is that you can anticipate receiving any return as much as 6 weeks earlier than those filing their returns via paper copy.
Taking advantage of these tips now can help to reduce your tax season stress and help you start out 2019 right. Have some questions/ We’re here to help. Contact us today to schedule a personal consultation with one of our tax experts.
As a tax-paying American, you’re likely well aware of the recent Tax Cuts and Job Act President Trump and the Congress unveiled in late 2017. The new bill called for some extensive changes in tax law, especially in the areas of tax bracket categories and limits on itemized deductions. The new tax law is hundreds of pages long and extremely complex, but we’re here to distill the information down for you so you can know just how the new rules will affect your day to day live for your 2018 tax return and beyond.
There are four main areas in which the this new tax code will have an impact on your overall bottom line:
- A Major Increase in the Standard Deduction Cap and Exemption Elimination Means Significant Changes.
The new tax law has some huge changes when it comes to the standard deduction and exemptions. While exemptions were eliminated, the amount of standard deductions have nearly doubled. Consider the deduction table below:
|Married Filing Jointly||$12,700||$24,000||$24,400|
|Married Filing Separately||$6,350||$12,000||$12,200|
|Head of Household||$9,350||$18,000||$18,350|
What do the higher deduction caps mean for you? For most Americans, it means that you will NOT end up exceeding the cap, therefore you will be taking the standard tax deduction and end up having a HIGHER taxable income.
- Income Tax Rates and Brackets Have Changed
Both tax rates and brackets changed greatly in 2018, and will change again for 2019. In general, the new tax rates will mean an overall decrease in taxes paid for most people. The idea behind this change was to provide greater relief for middle-class Americans.For example, everyone who lands in the 24% tax bracket will see a change for the better, but those who found themselves in the next bracket group might find they are paying a bit more in yearly income tax.
- What Will the New Child Tax Credit Mean to Me?
If you’re a parent, there’s some good news in the new tax reform. In 2017, the tax credit per child was only $1,000, but was bumped up to $2000 per child in 2018, and will stay at that rate for 2019. Additionally, the income limit for claiming the child care tax credit will increase to $200k for single filers and $400k for married couples filing jointly. This larger credit helps offset the loss of personal exemptions and is great news for parents.
- Sweeping Changes to Itemized Deductions
The huge bump in the standard deduction amount means that only taxpayers who have deductions exceeding those amounts will be able to itemize deductions. This is why it is more important than ever to ensure that you are making sure you are accounting for any and all possible deductions in your finances. Medical and dental costs, for example, are now deductible at 7.5 percent of your AGI as opposed to the 10 percent of previous years. State and Local Taxes (SALT) and property taxes can still be deductible, but now have a cap on them of a total of $10,000. These changes and others mean that it is very important you educate yourself on exactly what can be itemized and for how much, or work with an experienced tax professional.
The new tax laws can be daunting to anyone. We are here to help! Call us today to make an appointment with someone who can help you maximize the new rules in your favor.