4 Ways to Get a Jump on Your 2019 Taxes
February 7, 2019 |
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Okay, so it might seem a little early to be talking about next year’s taxes. There’s a fair chance that you’re reading this article before you’ve even filed your 2018 taxes (which are due on April 15, 2019, so mark your calendar so you don’t forget).
But it’s really never too early to consider your taxes for next year. And depending on how much you had to pay in federal or state taxes for 2018, now might be the perfect time to change things up to avoid paying as much next year, and possibly even getting a refund.
So here are 4 fairly easy ways to help you get a jump on your 2019 taxes and make a difference next time you file.
1. Check your withholdings.
Because there are tax changes almost every year to the standard deductions, it might be worth it to take a look at how much state and federal tax is being withheld from your paycheck. The more the government takes, the less you’re likely to owe. Take a look at your W-4 and see how many allowances or exemptions you’re taking. If you’re at the minimum, there is a section where you can have additional funds withheld. This might be a good idea if you owed a substantial amount to the IRS.
If you received or will be receiving a large refund this year, you should be able to adjust your withholdings so you get a little more money throughout the year and a smaller refund at the end of it.
Take a look at the 2019 tax brackets to see which bracket you fall into to know how much you’ll be expected to pay in federal taxes. This will give you a pretty good estimate as to how much you’ll have to pay during tax season 2020, and can help you adjust your withholdings accordingly.
2. Save for retirement.
For millions of Americans, saving for retirement can help reduce your tax bill every year. Whether you contribute to a 401(k), a traditional IRA, or other tax-favored retirement account, saving for the future can help lower the amount you owe in federal taxes. Check out our recent article on traditional IRAs and how they can reduce your taxes.
Retirement accounts that can help you lower your tax bill have rules — including maximum contributions, income caps, and so on — so make sure you keep a look out for the latest regulations.
If your company offers a 401(k) or something similar with an employer match, it’s a great way to increase your savings for the future. Retirement may be many years away (or even many decades away), but the sooner you start saving, and the more you save each year, the more you’ll have for retirement and your future. As a wise man once said, it’s generally better to have too much than not enough.
3. Set up an HSA.
There are only a handful of cases where you can write off medical expenses from your taxes, but there is one way you might be able to do it: establishing a Health Savings Account (HSA). An HSA allows you to make a tax deductible contribution of up to $3,500 for a single person or up to $7,000 for a family in 2019.
With an HSA, you can make a tax-deductible contribution without having to itemize your deductions.
If you have an Flexible Spending Account (FSA), which is similar to an HSA, make sure you are using all the funds in that account. Most FSAs are a use-it-or-lose it kind of account, so if you don’t spend all the money in the account, you could forfeit it. Using all of it will help avoid losing any funds.
4. Take advantage of 529 plans.
If you’ve saved for college for yourself or a child, then you’re probably familiar with 529 plans, which are savings accounts to help you save specifically for college that offer tax and financial aid benefits. Starting in 2018, the scope of 529 plans has expanded, and now you can use up to $10,000 from a 529 plan to pay for K-12 tuition in addition to college.
So if you have children in private schools, this can be a great way to help make the most of your finances.
One thing that’s unique about 529 plans is that the $10,000 limit is per account instead of per person or per child, like with other accounts. So if you have two plans and one child, then you can use up to $20,000.
Early in 2019, make sure you take some time to consider how you can get a start on your taxes. Using these 4 steps will help you make the most of your finances and make sure you’re not under- or over-paying the government.