Personal Tax Saving Tips for 2019 Courtesy of Tax Expert Ghada Burton- Tax & Finance Consulting Services
With personal tax filing substantially behind us for 2018, it is time to set our sights on tax planning ideas for 2019. Recent changes to U.S. tax laws make it even more important than ever to understand what you can do this year to properly plan your tax position to reduce your overall tax burden. Ghada Burton, tax consultant of San Francisco, California is a tax expert with extensive knowledge in U.S and international taxes as applied to individuals and corporations. She took the time to compile these tax preparation tips that put you in the driver’s seat for the 2019 tax filings.
Increase your retirement plan contributions
If you are concerned about your tax burden, Ghada Burton suggests you consider adding to your monthly retirement plan. This could be an employer 401(K) plan, Roth IRA or simple IRA. Most employers offer a match to every dollar you contribute towards your 401(K)retirement fund. By maximizing your allowable contribution, and capturing your employer’s match, you are well on your way to optimizing your retirement savings. Additionally, since 401(K) and IRA are pre-tax contributions, every dollar you contribute will reduce your current tax liability. Contributions and related earnings are taxed later upon withdrawal during your retirement at a much lower tax rate since retirees generally have a lower tax bracket. Since these contributions are tax-deferred and your retirement earnings are tax-free, adding to your retirement accounts throughout the year is an important way to both plan for your future financial health and decrease your annual tax bill.
Defer additional income to 2020
If you are expecting a large end-of-year bonus that will increase your tax bill in 2019, consider asking your employer to defer payment until January 1 of the following year or later, to postpone the additional taxes you will owe. This won’t decrease your overall 2-year tax burden unless you find yourself in a lower tax bracket in 2020. Ghada Burton states this is a short-term fix that may be helpful if your income was more than you had expected this year.
Pay attention to deductions this year and “bunch” them when you can
Last year, the Tax Cuts and Jobs Act (TCJA) increased the amount of standard tax deductions to $12,000 for individuals and $18,000 for heads of households (from $6,500 and $9,550). In addition, the threshold for married couples filing jointly jumped from $13,000 to $24,000. For planning purposes this year, if your deductions do not exceed the threshold for your filing group, you should take the standard deduction instead.
If you are close to the threshold but not yet over it, however; Ghada Burton says you can “bunch” expenses to push yourself over the threshold in a calendar year. To do this, consider moving forward annual deductions by increasing the amount you pay this year on mortgage pre-payments, charitable contributions, and other payments like state taxes or early property tax payments. Together, these early payments can help you increase your deductions and decrease your annual tax payment for 2019. Remember that charitable contributions can include items as well as cash gifts.
Give tax exempt gifts to family members
Another way to reduce your annual tax burden is to provide a tax-exempt gift to a family member of up to $15,000 (a recent increase from $14,000). For example, providing a financial gift via a trust or 529 tax-sheltered plan for college expenses is tax deductible, with the added benefit of investing in the future economic health, or education of family members.
Pay attention to your investment gains throughout the year
One item that can increase your tax bill at the end of the year is investment gains, also known as capital gains. To reduce the taxes owed on your investment growth, you can consider “tax-loss harvesting,” which Ghada Burton states, includes selling stocks and other investments that performed poorly throughout the year, to offset your gains on others. You can claim up to $3,000 in losses against non-investment income or carry forward losses over $3,000 into future tax years.
Organize now to reduce the burden at the end of the year
By organizing your financial information now, and by keeping your tax records updated throughout the year, you can reduce the stress and time needed to prepare your 2019 tax returns when they become due on April 15, 2020.
To do so, Ghada Burton recommends you collect and store important receipts and information, filing them somewhere safe and in an orderly fashion. Take advantage of certain financial software which help you document your expenditures throughout the year and classify them as tax related items for ease of filing. Record your additional income throughout the year, from rental properties, consulting income, investments and other sources. Once your tax documents start to arrive via mail or online, keep the information easily accessible. Taking the time to organize your files now will help you save time and effort in the long run.