It’s May, tax season is behind you, and the last thing you want to think about is going through that again. But Billshark wants you to think, not only about what unpleasant surprises you may have encountered this year, but how to avoid them next year. And the time to take steps to lower your tax bill is now.
Anything you do—or fail to do—in 2019 will impact your tax return next April, so reviewing these tips now could save you anguish down the line.
- The most important step you can take is to adjust your withholding. If you didn’t receive a refund (many taxpayers didn’t) you now know how much you need to have withheld from each paycheck to prevent you from having to owe next April. If you’re not sure how to calculate that, the IRS has a withholding calculator to help you decide.
Smart money managers, by the way, recommend you aim to come out even at the end of the year. Otherwise, they say, you’re just giving the government an interest-free loan.
Other people use their withholding as a kind of forced savings account, and use the money they receive in April to pay down bills, take a vacation, or spruce up their homes. That’s fine if that’s the only way to make yourself save money, but remember that you don’t make any interest that way. If you can force yourself to put the difference into a high-yield savings account or money market fund, for example, you could be making interest on that money.
- If you don’t already do so, start keeping receipts for things you can deduct next year. This includes medical expenses, charitable donations, and business expenses if you’re self-employed. It just takes a minute to drop things into a folder, and come next April you won’t be trying to recreate your entire year from memory.
Be sure to keep all these receipts together, whether in a physical location such as a file, or on your computer or in the cloud.
- Review your 401(k) or other retirement vehicles you may have, and try to increase your contributions as much as possible. Remember, this money is set aside before you pay taxes on it, thus reducing your adjusted gross income before you even consider other exemptions or deductions.
Health Savings Account (HSA) contributions work the same way: All contributions are made in pre-tax income. So if you expect to have large medical bills this year—if you’re pregnant, or contemplating elective surgery, for example—try to put as much into your employer’s HSA as you can afford.
- Learn all you can about the new tax law. One reason people were so blindsided by their tax bill this year is that so many traditional deductions disappeared.
Here are a few:
- property and local income taxes (known as SALT, or state and local taxes)
- personal exemptions (last year, $4,050 for yourself and each family member)
- the interest on home equity loans
- moving expenses
- job-related expenses such as mileage, professional fees, entertainment expenses, etc.
- charitable contributions (unless you itemize)
- tax preparation fees
The standard deduction has doubled, but for those who choose to itemize it may not make up for the loss of deductions in these other areas.
And whatever you need money for, let the professional negotiators at Billshark find it for you. Remember, it costs nothing for you to let us make the attempt.