The 2018 tax season may officially be over, but don’t hang up your tax-planning hat just yet. Now is the perfect time to be proactive about your 2019 taxes, especially if you weren’t exactly thrilled with your 2018 tax return.
Due to the revised tax laws enacted by the Tax Cuts and Jobs Act, tax payer liability changed across all states. In many cases, overall tax liabilities decreased. If you are one of the taxpayers whose tax obligation increased, however, and if you didn’t adjust withholdings during 2018, you may have owed a surprising amount of money when you filed your 2018 tax return.
To avoid any surprises when you file your 2019 tax return, you can take the opportunity right now to prepare. After all, why not push through the tax fatigue so you can breathe a little easier knowing you optimized your finances from a tax planning standpoint? Here is what you can do now to plan for your 2019 taxes.
Adjust Your Withholdings
You will want to adjust your withholdings immediately if you owed taxes when you filed your 2018 tax return. While it was widely known and publicized that people weren’t withholding enough from their paychecks and would likely wind up owing taxes, many individuals opted to wait and see how things would shake out under the new tax reform before making any updates. Now that you have filed your 2018 tax return, you can reference line 15 on your 2018 tax return to see how much you paid in taxes and go from there.
If you are self-employed, or you choose not to have your employer do all of your withholding for you, set up a tax savings account where you can earn a small amount of interest on your tax savings over the course of the year. This alternative is much better than going into debt to the IRS, since filing an extension does not get you out of paying the tax bill on time!
Max Out Your Retirement Savings
Contributing to your 401(k) or traditional IRA reduces your taxable income. Therefore, take advantage of the tax benefit now for prioritizing your future financial needs. It’s a win-win situation. I can’t think of anyone who ever regrets saving more toward retirement and then you can reduce your overall tax liability in the year you contribute.
Contribute to a Health Savings Account
Health Savings Accounts (HSAs) offer a triple tax advantage that is unlike any other investment or savings vehicle available. The money goes in pre-tax, distributions are tax-free, and the earnings on your money is tax-free. Like your retirement savings contributions, putting money into an HSA reduces your taxable income. If you are eligible for a Health Savings Account to pay for qualified medical expenses, this is something worth looking into!
Discuss Tax Planning Opportunities with Your CPA and Financial Advisor
Start chatting with your tax preparer and financial advisor now about ways to prepare for your 2019 taxes. Your individual situation will be best addressed by the financial professionals most intimately involved in your finances, and they should be able to further guide you in making tax-advantaged money moves. From how best to make charitable contributions to tax-loss-harvesting, there are a host of tax planning opportunities that may make sense for your situation that a financial professional can advise you about.
The moral of this tax-planning story is don’t delay. Taking the right steps now can help set you up for a more favorable tax situation come 2019 tax filing season.