If you had to choose, would you rather file your taxes or go without your phone for a week? At this point, you may be among the 28% of Americans who are also dreading having to deal with taxes and would gladly give up your cell phone just to avoid it. To add to the fun of tax season, the new Tax Cuts & Jobs Act means that we have a slew of new tax reforms to decipher and a new 1040 form to figure out. What was intended to simplify filing taxes for some has complicated it for others, with six new schedules to fill out, depending on your situation.
No matter how you tend to feel about tax season and the recent changes, the fact of the matter is that taxes are unavoidable. So, the sooner you get everything in order, the sooner you can shake off that looming stress and get back to focusing on things you love instead. Don’t let yourself be one of the 29 million people who file their taxes at the last minute. Start preparing now and give yourself a head start on tax season by following these four steps.
1. Organize Your Documents
Tax time usually means piles among piles of paperwork. The best way to avoid mistakes or missing possible deductions is to get all your documents in order before you start filling out your forms. Make sure you have records of the most commonly needed documents, such as:
- W-2, 1099, or other records of income
- Records of charitable contributions over $250
- Information from prior years’ tax returns
- Rental income
- Mortgage interest and property taxes paid
- Dividend income
- Childcare costs
- Medical expenses
Make a master list of all the forms and documents you need. You can even use last year’s return to remind you what your unique situation requires. As each document arrives in the mail, check it off and add it to your organizer. Your efforts to clear up some of the chaos today will make filing much faster and easier in the end. To help you out, we have created a handy checklist for you:
2. Take Advantage Of Deductions And Credits
Benjamin Franklin may have declared that “nothing is certain except death and taxes,” but that does not mean you cannot do your best to reduce your tax bill. Fortunately, there are multiple credits and deductions that will not only benefit you this tax season but also serve to give your financial future a boost.
Make Deductions Work For You
Just because we have turned the calendar to 2019 does not mean you cannot maximize your retirement savings and reap the rewards on your 2018 taxes. If your employer offers a 401(k), you can contribute up to $18,500 in 2018. If you are over 50, you can also take advantage of catch-up contributions of an additional $6,000. If you do not have the opportunity to save through an employer-sponsored plan, you can still invest in an IRA, depending on your income.
Contributions to HSAs (health savings accounts) are also an excellent option to reduce your total taxable income. The 2018 contribution limits for HSAs are $3,450 for an individual or $6,900 for a family. You can also make a $1,000 catch-up contribution if you are over 55.
For the 2018 tax year, you have until April 15th to contribute to HSAs, Roth and traditional IRAs, SEP IRAs and self-employed 401(k)s to benefit from this deduction, so jump on this opportunity to build your nest egg and reduce your taxable income while you can. Also, make sure to check with your 401(k) provider to see if you can make contributions after the calendar year.
There are some additional deductions that may also apply to you, such as state sales tax on major purchases, student loan interest, and medical and dental expenses. However, due to the new higher standard deduction, itemizing your taxes and applying these deductions may not work in your favor. Be sure to speak to a professional about tax strategies that will maximize your deductions under the new tax laws.
Research Applicable Credits
Filing taxes can be painful, but depending on your situation, you may be able to benefit from a variety of credits if you know where to look. Many Americans qualify for the Earned Income Tax Credit, and if you or your children attend post-secondary education, you could benefit from the American Opportunity Credit and the Lifetime Learning Credit. There are also credits for saving for retirement and child and dependent care. A qualified CPA will know what questions to ask and what to look for so you do not miss out on any opportunities to minimize your tax bill.
3. Reevaluate Your Filing Status
Have you experienced a significant life change this year, such as marriage, divorce, or the birth of a child? Any of these milestones will affect your filing status, which determines your tax rates, deductions, and eligibility for credits. Make sure you are filing under the correct status so you do not face unnecessary penalties or taxes.
4. Find A Professional You Can Trust
Did you know that over 1 million accountants are hired each year in America to help with taxes? And that is not without good reason! Working with a qualified and experienced accountant can make your tax season experience as seamless and stress-free as possible. They have the knowledge to help you claim all the deductions you deserve, account for many variables unique to your situation, and answer any and all questions you may have. Utilizing their expertise can save you money and give you peace of mind.
Not only that, but a CPA will also provide suggestions that will help you reduce your taxes for years to come, such as offering advice on tax-friendly ways to set up your estate and showing you the benefits of maximizing your retirement savings. Regardless of your financial situation, you cannot put a price on the value a CPA provides. At Strong Tower Associates, we not only take the lead to coordinate your financial plan with your other financial team members, but we can also help you find a qualified CPA so you can have full confidence in the service you are receiving.
We’re Here To Help
Tax day is drawing near, but you do not have to let that stress you out. Do yourself a favor and take these steps now to get ready for tax season so you are not scrambling at the last minute. If you have any questions about how to take control of your finances, get in touch by calling 814-325-9806 or emailing [email protected]. Or, if you prefer, you can now quickly and easily click here to request a meeting using our online system!
Ash Toumayants is a financial advisor and the founder of Strong Tower Associates. For over a decade, he has helped hardworking people across Central Pennsylvania prepare for retirement. Fueled by a passion for helping people see through the veil of confusion that shrouds the financial world, his goal is to educate his clients so they can make more sound choices regarding their financial future. A Penn State graduate, he currently lives in State College with his lovely wife, Noelle, and their four adorable children. Learn more by connecting with Ash on LinkedIn or emailing [email protected].
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