The coming tax-filing season will be full of twists and turns. The new tax forms should be in place, and old familiar tax breaks are gone, replaced by new tax breaks and new tax-saving opportunities. If the 2019 filing season were a reality show, no doubt it would be the most dramatic season yet.
With 2018 quickly drawing to a close, now is the time to look for last minute tax-saving moves. To assess where you stand with Uncle Sam, estimate your 2018 tax burden by doing a tax projection. This is done by tallying up your taxable income streams, and estimate the amount of taxable income you expect for the rest of the year. Run the numbers using the standard deduction and by itemizing deductions to see which route saves you the most money.
Once you complete your 2018 tax projection, you’ll have some clarity on which tax-saving opportunities might be beneficial for you and if any must be executed by year end.
Remember that maximizing your contributions to tax-advantaged retirement accounts can lower your taxable income. This is one of the most effective ways to reduce your tax burden, while at the same time saving for retirement. If you’re still working, stash as much as you can in your company retirement plans like 401ks and traditional IRAs.
Employees can contribute up to $18,500 into a traditional 401k, and if you’re over age 50, you can contribute an extra $6,000, for a total of $24,500. Plus, you can contribute $6,500 into a traditional IRA for 2018.
A nonworking spouse can contribute to their own IRA, based on the wages of the working spouse, as long as the worker’s earnings cover the total contributions and the married couple also fit within the income thresholds to get a tax deduction. While the IRA contributions can be done until the tax filing deadline of April 15th, 2019, 401k contributions must be done before year end to count for the 2018 tax year. If possible, you should max out the 401k contributions first.
If you contribute to a health savings account (HSA), maxing out contributions to that tax-advantaged account can also lower your taxable income. In 2018, taxpayers can make tax-deductible HSA contributions of up to $3,450 for a single person, and up to $6,900 for a family.
One tax break that got sweeter under the new tax law is the medical expense deduction. For 2018, itemizers can deduct medical expenses that exceed 7.5% of adjusted gross income. That threshold goes up to 10% in 2019, so consider whether you might have any elective medical procedures that you can accelerate into 2018 instead of next year, so more of those medical expenses can be deductible.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.