January 15, 2019
With the beginning of a new year, comes the perfect opportunity to begin to think strategically about your taxes, if you haven’t already. Here are a few points you might want to take into consideration when planning your taxes:
Decide whether you will take the standard deduction or itemize when filing:
There are 2 options available to tax payers when preparing their returns: they can choose to itemize their deductions, or take the standard deduction provided by the IRS. The standard deduction rose to almost double in 2018, and this year it will rise again. These increases will make filers far less likely to itemize deductions on their returns.
If you’re undecided about whether to itemize or not, you can always seek help from a professional tax service, who will give you unbiased guidance about every aspect of your tax return.
Check your withholding:
The IRS strongly urged tax filers to update their tax withholding last year after the tax overhaul that recently took place, but few Americans did so. As a result, many tax filers will be unable to spread the cost of their taxes over the year or may end up paying too much to the IRS up front. Both scenarios could be avoided by the checking of withholdings and doing so simply makes financial sense for those filing.
To give yourself the time to make any adjustments should you need to, check your withholding now (at the beginning of a new year) and avoid any potential under or overpayments in the coming year.
Is your first required minimum distribution due?
Required minimum distributions, or RMD’s, are something that every filer needs to be concerned about if they have retirement savings in a tax-advantaged plan that isn’t a Roth IRA. Once you turn 70 and a 1/2, you will be required to begin removing a portion of your retirement account each year, as the IRS do not want the retirement savings of senior citizens to sit and flourish in a tax-advantage manner indefinitely.
RMD’s are usually due before the 31st December every year, but if you turned 70 and a ½ last year, you’ll need to take your first one before the 1st April 2019. For more detailed guidance about RMD’s, be sure to seek advice from a tax professional.
Take a good, long look at your portfolio:
Many Americans will have seen some losses in recent weeks where their investments are concerned, and so the start of this new year would be a good time to evaluate your investment portfolio. Liquidating your holdings to incur actual losses is not something you should rush into doing, however, a few minor losses might benefit you early this year. Losses can be used to offset gains, so throughout 2019, if the market regains some stability and you can make money on other investments, you’re then able to use your losses to offset those gains.
Your overall goal for any year is naturally to pay as little in taxes as you legally can, and if you follow the above guidance and seek professional help with any other queries that you might have, then you’ll give yourself the best chance of keeping as much of your hard-earned money as possible this year.
Tax time comes around with surprising regularity, and when it seems you’ve only just got over the stress of filing in time for the deadline, that time of the year comes around again and our taxes loom over us like a rain cloud.
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As discussed in Part One, the majority of US citizens use the services of paid tax professionals to help them submit their tax returns each year, and with these simple tips, your tax preparation experience can be as pain-free as possible:
Locate records of all charitable contributions: