Tax season is wrapping up, but that doesn’t mean you should stop thinking about taxes. The financial decisions you make throughout the year can have a big impact on next year’s tax bill so now is the time to act.
To help you get started on tax planning for 2019, here are our tips to consider to reduce your tax bill next spring.
If you’re like many people, tax season is a last-minute scramble to pull everything together. This approach can lead to sloppy documentation, missed deductions and lost opportunities. If you don’t already have a system in place for tracking deductible expenses—like medical bills, home office expenses and business-related expenses—talk to a financial advisor about how to get started.
Maximize Your Retirement Contributions
Retirement strategies play a big role in both financial planning and tax planning. Done right, these contributions can reduce your taxable income. Employer-sponsored 401k plans offer the highest potential deductions: up to $19,000 in 2019, with a $6,000 catch-up provision if you’re over age 50.
Rethink Your Charitable Contributions
The tax reforms that went into effect last year eliminated many itemized deductions and substantially increased the standard deductions. For many taxpayers, this means it no longer makes sense to itemize, unless you have a significant amount of deductions in a single year. So rather than spreading out charitable contributions across several years, consider “bunching” them together during years you’ll be itemizing.
Review Your Withholding Elections
Few people revisit their W-4s after their initial hire. If you’ve had big life changes, such as having a child, getting married or divorced, or buying a home, those initial elections might leave you with an unexpectedly large bill or a significant refund. A big tax bill means you haven’t been withholding enough, and a large refund means you’ve been letting the government hold onto your money interest-free. Our goal is to avoid either of those outcomes, instead withholding as close to the exact amount of tax you owe as possible.
Harvest Your Losses on Stocks
You can deduct your investment losses to offset any gains and the capital gains tax or reduce your taxable income (up to certain limits). If you stand to have big gains this year, it might be a good time to realize some of your losses, assuming it makes sense for your investment strategy. Be sure to discuss any investment decisions with your investment manager or tax advisor before making any moves.
Revisit Your Annual Gifting Plan
If annual gifting is part of your estate plan, now is the time to revisit it, if you haven’t already. The federal tax reforms of 2018 increased the annual gift tax exemption from $14,000 to $15,000.
Tax planning is an ongoing process. Nobody wants to be surprised by a big tax bill. You can help avoid that surprise—and keep more money in your pocket—by thinking about tax strategies throughout the year.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
This article originally appeared in the Brainerd Dispatch on 4/29/19. You may view the article here.
Bruce Helmer, a founding member of Wealth Enhancement Group, has been the host of the “Your Money” Radio Show for more than 20 years. He is also featured weekly on the Twin Cities CBS affiliate WCCO, and has penned three financial advice publications.