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.