Thinking about taxes this time of year is basically not in your to-do-list.
Yet it’s still the best time to audit and prepare for next year’s tax season.
With our practice, we have compiled some of the easy, last-minute tax savings guides before the end of the year.
401K savings
If you work for a company that has a 401K plan and it’s directly diverted out of your paycheck, it can lessen your taxable income, thus reducing your taxable income.
- The maximum contribution is $19,000 per year into an account.
- 50 or older folks can add an extra $6,000 in 2019.
- Business owners could open their own 401(K) account and take advantage of the savings.
College savings
Saving for college is always a plus. Though 529 plans can’t be deducted on a federal level, you might be able to on your state returns. This will be applicable if your contributions are within your state.
IRA contributions
If your company doesn’t offer a retirement savings account, an Individual Retirement Account is an option.
Individual retirement accounts come in two types: Traditional IRAs and Roth IRAs
The income limits with these retirement plans are important caveats with these options.
Nevertheless, even without the deductions, you should contribute to your retirement account. Interest on contributions grows tax-free, thus maximizing compounding growth in the long run.
Re-write your W-4
If you’re getting a larger refund, it means that you are lending your money to the government interest-free.
On the other hand, if you are paying a lot more in taxes, you’re not paying the right amount of taxes by the end of the year.
The remedy is easy!
- If you are getting a larger refund, reduce your withholding. That way you can have more every paycheck, consequently have more savings.
- On the other side of the coin, paying taxes is not the best surprise you’ll want to get.
Increase your withholding for a point or two decreases your taxable income. This way you’ll pay less in taxes come tax season.
- You can change your W-4 elections any time within the tax year.
Flexible Spending Account, Fund it!
If your company is sponsoring an FSA account. Try as much to fund it. Funds diverted to FSA accounts are tax-free and will lower your taxable income.
- Contribution limits are $2,700 for 2019 and $2,750 for 2020.
- Use the money before the end of the year for medical and dental expenses.
- Supplies that are pretty practical too, items like:
- Blood pressure monitors
- Athletic and orthopedic braces
- Dental creams and supplies
- Breast pumps
- Hearing aid batteries
- First Aid kits
- Glucose Tablets
- Nasal Sprays
- Heating Pads
- Athletic and orthopedic braces
- Dental creams and supplies
- Breast pumps
- Hearing aid batteries
- First Aid kits
- Glucose Tablets
- Contact Lenses and Supplies
You can stock up on these items and be set for the following year. See the full list here.
Giving some away
A Charitable gift is a no brainer. If you have an organization that you would want to support, this is the best time of the year.
Your donation could lower taxable income when you itemize your deductions.
You can check your organization if they are registered as a 501(C)(3) and are tax-exempt here.
Planning your Tax Savings
We know that looking at your taxes is not the most exciting moment this holiday.
Taking advantage of these tax savings gives you leverage on your savings.
Plus, you’ll be on track with your tax status and be more aware of any changes that might affect your tax bracket.
You don’t need to know the tax code or even file your own returns. Just know the areas that affect you and your family.
Remember, No one knows your finances more than you do.
If you have a significant life-changing event that could affect your tax status, let us know.
