The beginning of the new year is the ideal time to start preparing for next year’s tax returns. There are some things you can do to reduce your taxable income at the last moment such as maxing out certain retirement contributions. However, other techniques, such as bunching contributions, require a bit more planning. Keep reading for actionable advice on how to reduce your tax liability next year.
REVIEW YOUR 2018 TAX RETURN
Once you file your 2018 tax return, look at how much you owed or how much you received as a refund. If you received a tax refund of several thousand dollars, consider decreasing your tax withholding this year. You are having more money taken out of your paychecks for income taxes than you owe. It is much better to use this money to fund investments or repay debts throughout the year.
MAX OUT RETIREMENT CONTRIBUTIONS
Certain retirement investment vehicles, such as the 401(k), 403(b) and traditional IRA are great ways to reduce your taxable income next year. For 2019, the maximum contribution for 401(k), 403(b), Thrift Savings Plan and most 457 plans have been increased by $500 to $19,000 for the year. Similarly, the maximum IRA contribution has been raised by $500 from $5,500 to $6,000, and the catch-up contribution limit for employees at least 50 years old is still $1,000.
BUNCH YOUR DEDUCTIONS
The 2019 standard deduction for married filing jointly is $24,400, $18,350 for head of household and $12,200 for any other filing status. This threshold can make it difficult to itemize your deductions. One technique is to time deductible expenses so they occur in the same calendar year. Such expenses may include charitable contributions, mortgage payments, property tax bills, medical bills, and student loan payments. An expert can help you determine which deductions you qualify for and how to time your expenses to your advantage.
Tax planning can feel stressful and overwhelming. However, you don’t have to do it alone. Professional help goes a long way in reducing stress and making the most of the deductions and credits you are eligible for. If you need help navigating the murky waters of the tax code, contact us today. We’re here to help.