Note: Before altering your tax strategy, consult with your tax specialist. They have a firm understanding of your wants and needs, as well as the knowledge of tax law required to maximize your wealth potential.
Tax season is now in full swing and at this stage, you should be putting the finishing touches on your 2018 taxes to meet the IRS’s filing deadline. Now is also a great time to take another look at last year’s tax code changes to make sure your 2018 return is accurate and ensure you are setting yourself up for a successful 2019 tax year.
Don’t Miss the 2018 Filing Deadline
April 15, 2019, the deadline to file 2018 returns, is coming up fast. If you’re behind schedule, don’t forget to file Form 4868 with the IRS before the deadline. This extension could buy you another six months to complete your return. Keep in mind, though, that it will not excuse you from paying penalties and late fees for any tax payments you owe the IRS.
Review Recent Tax Law Changes
Before wrapping up your 2018 return, don’t forget to review recent tax law reforms, which could reduce your tax bill or increase your refund.
Some key reforms applicable to many taxpayers include: an increased standard deduction and child tax credit, restructuring of tax brackets, reductions or eliminations in a variety of itemized deductions, and lowered thresholds for qualifying medical expenses.
Tips to Improve Your Tax Health in 2019
Making wise financial choices related to your taxes is an ongoing process that doesn’t end when you submit your annual return. Throughout the year, think about how you can use the reformed tax laws to your advantage. Add the below tips to your 2019 “To Do” list to help get a jumpstart on tax-planning strategies:
- Review your 2018 tax return: Once any refund you are due is paid out (the IRS offers a refund tracking tool to help taxpayers stay up to date on this status), go back to the drawing board to see if you should make any tax changes for 2019. Specifically, look at your return to determine if you did not withhold enough or withheld too much in federal income taxes from your paycheck. If so, work with your employer to submit a new form W-4 claiming the correct number of exemptions. The IRS withholding calculator is a great resource to help ensure you get this number right based on your unique situation.
- Review your Health Savings Account (HSA) and Flexible Spending Account (FSA) contributions: Review contributions to HSA and FSA accounts to ensure you are taking maximum advantage of the tax savings opportunities they offer to help you cover out-of-pocket medical expenses.
- Maximize tax-free contributions to retirement plans: Reduce your taxable income, and your future tax bill, by maximizing contributions to your retirement accounts. In 2019, the maximum contribution limit for 401(k) accounts rose to $19,000, up $500 from 2018. Individual Retirement Account contributions also increased by $500 to $6,000 in 2019.
- Evaluate your itemized deduction strategy: Common itemized deductions include: charitable contributions, property tax payments, and mortgage interest. Another consideration is a home office tax deduction if you are self-employed (although reformed tax laws eliminated this deduction for employees, it still offers those who are self-employed an opportunity to write off portions of expenses paid for rent, insurance, utility costs and more, for areas of a home devoted exclusively to running a business). Even though the standard deduction climbed higher under the new tax law, some taxpayers could benefit from itemizing, or selecting specific deductions which apply to them, in 2019. If you plan to itemize, consider pushing deductible expenses into one calendar year. For example, consider making most of your charitable contributions in every other year, or, weighing if certain medical expenses are better served in this year or next year. By “bundling” these deductions into one year, you may find that itemizing is more advantageous for your situation.
- Pledge to keep your financial records organized: One of the best ways to keep your financial documents organized and help ensure you do not miss a tax-related deadline in 2019 is to use a financial planning calendar. This strategy helps you remain on top of important tax documents such as your annual wage and tax W-2 statements, form 1099s listing income from dividends and interest on financial accounts, form 1098s detailing your mortgage-related expenses, as well as all other documents related to your annual tax deductions and credits. You can also set a reminder to grab a copy of your free annual credit report, as well as when to file property tax exemptions (some states offer homestead exemptions to reduce tax bills or provide tax breaks for veterans, the elderly or those who are disabled. Check with your local property tax office to learn which exemptions may apply to your situation.)
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