As 2018 wraps up, many are starting to think about their plans for next year and how to prepare for the new tax season. Given the passing of tax reform last year, you may be wondering how your taxes are impacted. What if the tax law changes mean you may owe money next year? How can you prevent that?
Maybe you ran the numbers and saw that you’re projected to owe money. Don’t panic, one big advantage on your side is time. Now that you know you’re projected to owe, you can make some money moves before December 31st to improve your tax picture.
Contribute More Towards Retirement
Not only are you building your retirement stash, but if you’re contributing to your company’s 401(k) and/or traditional IRA you are also lowering your taxable income now.
Right now the contribution limit for a 401(k) is $18,500 ($24,500, 50 or older) and $5,500 ($6,500, 50 or older) for your IRA.
You may also be eligible for the Savers Credit worth up to $1,000 ($2,000 married filing jointly). The Savers Credit is a little-known tax credit that lower to middle-income taxpayers can get just for contributing to their retirement and because it’s a credit, it will reduce the taxes you owe dollar-for-dollar.
You also don’t need to know how to claim the credit when you use TurboTax. TurboTax will ask you simple questions about your retirement contributions and automatically give you the Savers Credit based on your entries.
Donate to Charity
The holiday season is a great time to clean out your closets and household goods to give to those in need. You can help someone in need and reap the benefits of a tax deduction for non-cash and monetary donations donated to a qualified charitable organization if you can itemize your tax deductions.
If you volunteer at a qualified charitable organization, don’t forget that you can deduct your mileage (14 cents of every mile) driven for charitable service. TurboTax ItsDeductible will accurately value and track your yearly-donated goods and mileage for volunteering.
Make these donations count on your taxes by donating by December 31st. Even if you make a donation by credit card, you do not have to pay it off in 2018 to receive the tax deduction.
Don’t Forget About Things You Do All Year
Don’t forget that things you do in your everyday life can amount to a tax deduction or credit that can improve your tax picture so don’t forget to start gathering your receipts for tax-deductible expenses like childcare, college, and medical care so you can include them in your taxes.
Know Where You Stand
As you get to the end of the year, it will be helpful to know where you stand with your taxes and finances so that you can make smart money moves. If you haven’t already, you should go ahead and review your numbers.
We use free tools to help us figure out where we stand and make tax-saving moves. One of the free tools is TurboTax TaxCaster app which gives you an estimate of your tax refund or lets you know if you owe and also gives you a side-by-side comparison of how tax reform impacts your tax year 2018 taxes.
You can also use the new free Standard vs. Itemized Deduction Interactive tool where in just five screens you can see if you will benefit from claiming the standard deduction or itemizing under the new tax law, get explanations of changes in tax provisions, and tips on what you can do to maximize your tax deductions.
Save Up Now
If you find out you owe now, this will give you time to start planning how to pay and save up now. You can start automating transfers into savings. If saving doesn’t seem possible with your current budget, try doing a money challenge. It can be an effective way to save more by making a game out of it.
You may also realize some new ways to optimize your budget going forward. By the way, if your tax bill is still too much for you to pay at once, reach out and set up a payment plan with the IRS. Believe it or not, they want to help you.
Thoughts on Handling Taxes
As you can see, you can get some huge wins with your taxes by making sure you’re claiming all applicable tax deductions and credits you qualify for. By starting now, you’ll give yourself more time to get things squared away and you’ll have less stress come tax-time.
Don’t worry about knowing tax laws. TurboTax will ask you simple questions and give you the tax deductions and credits you’re eligible for based on your entries. If you have questions, you can connect live via one-way video to a TurboTax Live CPA or Enrolled Agent to get your tax questions answered. A TurboTax Live CPA or Enrolled Agent can review, sign, and file your tax return.