Taxes–you can’t avoid them, but you can make the annual ritual a little less, well, “taxing” with proper planning and preparation. And, you may be able to reduce this year’s burden. I’ll offer more details next month but let’s get started today with an overview.
1. Record keeping. Come January, you’ll be receiving your W-2s, 1099s, form 1098 (mortgage interest), itemized lists of donations to charities, and more.
Decide now where you would like to store your records. Do you do your own taxes every year or does a tax professional prepare your return? In either case, have the necessary records in an easily accessible location. That way, you’re not scrambling when tax time begins.
2. Changes in marital status and withholdings. Whether you are getting married or are going through a divorce, a change in marital status can have a significant impact on your tax liability.
You may need to complete a new W-4 form with your employer. If you are self-employed, an adjustment in quarterly payments may be in order.
If possible, it’s best to avoid the need to write a big check to the IRS that triggers an underpayment penalty. While some folks enjoy getting a big refund each year, the April windfall comes in the cost of an interest-free loan to the government.
3. Maximize retirement contributions. If you participate in an employer-sponsored plan, let’s see if you can contribute the maximum amount. More importantly, by not participating in any portion of the employer match, you are passing up a free gift–a gift that will pay dividends via long-term appreciation.
4. Charitable donations. The standard deduction has been raised and fewer folks will benefit from itemizing. Still, many find satisfaction in donating cash to their favorite causes even if a tax benefit is not forthcoming.
Some charities gladly take non-cash donations. It’s a great way to remove items from your home you no longer need, and someone less fortunate will benefit. If the value of all noncash donations exceeds $500, you will be required to complete Form 8283 (IRS: About Form 8283, Noncash Charitable Contributions).
5. Health care coverage. Tax reform eliminated the penalty for failing to have health insurance, but the individual shared responsibility provision was eliminated for tax year 2019. If you or family members do not have the minimum essential coverage, you may be subject to a penalty when you file for 2018.
Most taxpayers will simply check a box to indicate that each member of their family had qualifying health coverage for the whole year (IRS: Health Care Law: Do You Have Minimum Essential Coverage?)
6. Health savings accounts. If you have a Health Savings Account (HSA) eligible plan, you can contribute up to $6,900 for your family. The contribution limit for self-only coverage is $3,450 (IRS: 2018 HSA contribution limit for individuals with family HDHP coverage).
Contributions can help lower your taxable income, and you’ll have a savings account that’s available to assist for qualified medical expenses.
7. Gift taxes. Are you giving gifts this year? If so, be aware that anything over $15,000 triggers the gift tax. There is a $30,000 exclusion for couples (IRS: Frequently Asked Questions on Gift Taxes).
The gift tax is generally paid by the donor, not the recipient of the gift.
This is not an all-inclusive list, and you may not have had any significant changes in your financial situation this year, But, getting an early start can prevent the troubles that always seem to surface in April.
As with any tax situation, feel free to contact your tax advisor.
I hope you’ve found this review to be educational and helpful. As always, I’m honored and humbled that you have given me the opportunity to serve as your financial advisor. If you have any concerns or questions, please feel free to reach out to me at email@example.com or schedule a call with me at phone.meetingwithric.com and we can talk. That’s what I’m here for