Nothing says “happy spring!” quite like tax time. If that looming April 15th deadline gives you a headache, you’re not alone. But it doesn’t have to be so overwhelming. The best way to tackle your taxes is to take them one step a time.
Here is a roundup of my top tax tips to help you cruise through tax season a little easier:
Gather Your Documents
Whether you’re doing taxes on your own or working with an accountant, you know there is a lot of document gathering involved. The more you can collect and have accessible, the better. Here are some of the documents you’ll probably need:
- Income
- W-2s
- 1099s (for interest, dividends and contracting work)
- Roth Conversions
- Potential Deductions
- HSA Distributions/ Contributions, Charitable Contributions, Home Improvement
- Taxes you’ve paid – real estate, state & local, & personal property
- Student Loan Interest – 1098-E
- Mortgage Interest Statement – 1098
- HSA Distributions/HSA Contributions
- Charitable Contributions
- Home Improvement – Energy Efficient Deductions
- Other
- Health Insurance 1095-A
Make Last-Minute Contributions
Dec. 31st is a common deadline for most contributions, but not all of them.
Income-eligible taxpayers can still contribute to an IRA, both traditional and Roth, right up until April 15th. A key difference: traditional IRAs are tax deductible, but Roth IRAs are not. So if you’re looking for an immediate impact on your taxes, only a traditional IRA contribution will decrease your tax bill.
If you want more tax savings, you can also contribute to an HSA (Health Savings Account) right up until the tax day deadline. When you contribute to these accounts, just be sure to specify you’re adding money for the 2018 calendar year, so it applies to your 2018 taxes.
Assess What You Owe or Receive
The Tax Cuts and Jobs Act probably made your refund look different this year, if you got one.
If you did end up owing money to the IRS, here are some quick tax tips to avoid that next year:
- Watch your deductions. The new tax laws capped state, local and foreign property taxes and income taxes at $10,000 annually, or $5,000 for married people filing separately. You might be used to itemizing your deductions, but with this cap in place, it could make more sense to go with the standard deduction.
- Increase withholdings. If you owe the government money at tax time, it means you did not pay enough out of your paychecks. Adjust your withholdings so you pay more, and you will have a lower tax bill for 2019. You should also change your withholdings to reflect life changes, like moving, getting married or divorced, or having a child. You can use the IRS withholdings calculator for extra help here.
Spend Your Refund Wisely
Use your refund to boost the financial areas that are lagging behind, or treat it as an opportunity to invest. Here are some smart ways to spend your refund:
- Pay off high-interest debt
- Prepare for expenses down the road, and add that money to an emergency fund
- Boost your retirement savings
- Contribute to your child’s 529 college savings plan
- Set up an HSA (Health Savings Account)
The best way to maximize your refund is to make a plan for it. Don’t leave it in your checking account, where it’s likelier to be spent. Check out more ideas for making the most of your refund here.
About Your Richest Life
At Your Richest Life, Katie Brewer, CFP®, believes you too should have access to financial resources and fee-only financial planning. For more information on the services offered, contact Katie today.