Tax season is stressful enough. With the sweeping changes that took effect for the 2018 tax year, many taxpayers are going to be caught off guard when it comes time to file their returns. Are you going to be prepared? Start planning now and breeze through the 2018 tax season.
1. Get organized and begin gathering missing records.
Get a manila envelope or folder and start filling it with the tax records you already have. Receipts for charitable donations, medical expenses, home improvements, property tax bills, gambling wins and losses, etc. should be collected throughout the year. When January rolls around you can add the other tax documents as they come and be ready for your tax return preparation appointment.
2. If you don’t already have one, start shopping for a tax preparer.
When you choose a professional firm like Bacon & Gendreau, your dedicated tax professional will have decades of experience and continuing education to help you make the best possible decisions to minimize your tax liability, during your tax return session and beyond. They will be there year-round to answer your questions and stand behind your return.
3. Check your withholding.
If you haven’t recalculated your withholding since the new W-4 was released this spring and submitted any changes to your employer, don’t wait any longer! There’s still time to make adjustments and avoid a big tax bill or penalties. If you are self-employed, have multiple jobs or large investments, seek professional help. For taxpayers with more basic tax situations, use the IRS Withholding Calculator.
4. Decide if bunching deductible expenses will benefit you.
For it to be advantageous to deduct certain expenses, their sum will need to be greater than the standard deduction. For the 2018 tax year, the standard deduction is $24,000 for married taxpayers filing jointly. For medical expenses, only the portion over 7.5% of a taxpayer’s adjusted gross income counts towards that figure. Maybe you should have that medical or dental procedure you’ve been putting off before December 31st or make that big annual charitable donation in January instead of at Christmas. Maybe it’s more advantageous for you to upgrade your business’ equipment after the first of the year instead of before. By consciously bunching deductible expenses into a certain tax year you can maximize your deduction and minimize your tax liability. Your tax professional can advise you for your individual tax situation.
5. Estimate the tax consequences before deciding to sell major assets.
If you’ve lived in your home less than 2 years and it’s increased significantly in value, selling could cost you big at tax time. If you sell an investment you’ve held for under a year at a profit, you’re going to pay significantly more tax than if you hang on to it a little longer. Work with a financial advisor or tax professional so you understand the pros and cons before selling major assets.
6. If you’ve had a big life event this year, reassess your overall tax picture.
If you had a big life event or a change to your eligible filing status, or will by December 31st, your tax liability could be drastically different than previous years. If you’ve married, divorced, have a new child or an older child is no longer a dependent, bought or sold a home, had a significant raise or pay cut, or you or your spouse started a new job, you should review your withholding and tax deferred savings as soon as possible.
7. Consider saving more to reduce your taxable income.
Have you made the maximum contribution to your Health Savings Account? Are you contributing the allowable maximum to your 401(k) or IRA? Consider saving more if your budget allows. All those contributions work towards a healthy savings and can have significant tax advantages. Seek professional advice on the best options for you.
8. Familiarize yourself with the major tax changes likely to affect you.
Stay informed. Information and clarification on the tax reform changes continues to trickle in. Watch our Facebook page and bgtaxct.com for news likely to affect your tax return. As always, if you are a client with questions please feel free to contact our office at 860-216-2195 or email your Bacon & Gendreau tax professional.