Most of the actions you can take to reduce your tax bill have to happen by the end of the taxable year (a.k.a. December 31st.) However, there are still a few opportunities to save money on your taxes this year.
The changes from the Tax Cuts and Jobs Act mean that many Americans will see a lower refund or end up owing this year. So this is a good time to do what you can to save yourself a little money.
Here’s what you can do up until tax day, April 15th, to lower your tax bill:
Contribute to Your IRA to Save on Taxes
Unlike other retirement plans, you can contribute to a traditional IRA right up until tax day. The amounts you could contribute in 2018 (and can contribute up until you file in 2019) are $5,000 or $6,500 if you turned 50 or older last year. These contributions are tax deductible, so anything you add will help you save on taxes for the 2018 filing year.
You can also contribute to a Roth IRA, but know that the contributions aren’t deductible. The tax benefit for a Roth IRA is that you can withdraw an amount equal to your contributions whenever you want without a tax or penalty.
Note: If you make too much money to contribute to a Roth IRA, you can contribute to a Traditional IRA and convert it to a Roth IRA later.
Contribute to an HSA
Contributions to an HSA (Health Savings Account) are tax-deductible, and you can make them right up until the tax day deadline.
HSA contribution limits for 2018 are $3,450 for individuals and $6,900 for families. You can tack on an extra $1,000 if you turned 55 or older last year.
You can also withdraw from an HSA tax-free as long as you’re using the money for qualified health care expenses.
Note: For both an IRA and HSA, make sure you notify your company that the amounts you’re adding to these accounts are for 2018, not 2019.
Pay Attention to Deductions
The 2018 Tax Cuts and Jobs Act will probably make your tax refund look different this year. Pay special attention to the major changes in deductions, like these:
- Standard deductions for 2018 are $12,000 for single or married filing separately, $24,000 if you’re filing jointly with your spouse and $18,000 for head of household. There are additional deductions for taxpayers who are blind or over 65 ($1,300), and unmarried people ($1,600.)
- Itemized deductions have also seen some changes, especially given that state, local and foreign property taxes and income taxes are capped at $10,000 annually.
If you’re a homeowner, only the interest related to buying, building or drastically improving your home will be deductible. For many home equity loans, the interest will not be deductible anymore.
- Personal casualty losses – those would include losing your property to storms, fire, theft, etc. – won’t be deductible unless the losses are attributed to federally declared disasters.
- Medical expense deductions are still around, and through 2018, the deductibility will be 7.5% of adjusted gross income instead of 10%.
The best way to make sure you receive the deductions you’re entitled to is to do your research. You don’t want to be blindsided by your refund (or lack thereof) because you expected to receive more. Be aware of the changes in your taxes this year, how they might affect you and your family, and what you can expect after you’ve filed your taxes.
About Your Richest Life
Katie Brewer, CFP®, believes you too should have access to financial resources and fee-only financial planning. Contact Katie today for more information.