Time does fly, so start thinking about your taxes now. Being proactive and making the right decisions now can help set you up for more success in 2019. There are some end-of-the year financial tasks that you should think about started on right now.
More than half way through the year is a great time for a withholding checkup. The IRS released new withholding tables in January for employers to use in 2018. The new tables reflect the increase in the standard deduction, repeal of personal exemptions and changes in tax rates and brackets. It is best to make sure you are on track now.
Check on your retirement savings. Contributions to a traditional IRA are immediately tax-deductible, while contributions to a Roth IRA are tax-favored at retirement. Additionally, the more money that you can put away into your 401(k) or other retirement savings plan, the better, since most contributions are made with pre-tax money. That goes for self-employed persons, too: SEP IRAs and solo 401(k) plans allow for long-term savings and immediate tax benefits.
With healthcare costs on the rise, now is an excellent time to do a quick check on your health care accounts, including your healthcare flexible spending account (FSA) and your health savings account (HSA). FSAs are set up by an employer as a benefit plan, often in connection with a high deductible or high co-pay health insurance plan. They can be funded by you, your employer, or both; the most common arrangement involves voluntary contributions to a plan taken out of your paycheck with additional contributions made by your employer on your behalf. With an HSA, you can contribute pre-tax dollars directly from your paycheck – even without an employer contribution. And unlike the FSA, the HSA is not a ‘use it or lose it’ account, so the funds roll over at the end of the year.
Depending on your finances, you may need to make estimated payments. Estimated tax is generally payable by self-employed and freelance taxpayers, as well as other taxpayers not subject to withholding like landlords, S corporation shareholders, partners in a partnership or taxpayers with significant investments. To make estimated payments, you will use federal form 1040ES, Estimated Tax for Individuals. Estimated taxes are due each quarter: if you skip a payment or pay late, you may be subject to a penalty.
Since many people will want to take an advantage of the higher standard deduction rather then itemize, they may no longer be included to make charitable contributions for tax purposes. (If you do itemize, however, your contributions are still deductible).
The good news is that medical and dental expenses survived tax reform and for 2018, the floor is back in play at 7.5% of your adjusted gross income (AGI).
Under the new tax law, one of the most valuable tax deductions, the amount that you may claim on Schedule A for all state and local sales, income, and property taxes together may not exceed $10,000. Personal foreign real property taxes can no longer be deducted at all, so no more deductions for property taxes on that place in Cabo. Downsizing never looked so good.
If you start paying your tuition bills now, you will be able to take an advantage of educational tax breaks, the American Opportunity Credit and Lifetime Learning Credit, in 2018.
Your tax professional is not exactly sitting around the office twiddling his or her thumbs about now. There are still returns to be done, accountings to be filed, and petitions to prepare. But thankfully, this time of year is not quite as busy as it was a few months ago, which makes it a great time to touch base with your tax professional. Setting up a meeting to discuss how things look now and whether you should engage in any additional planning is a good idea. Just don’t wait too long to make an appointment, since the busy season will be here soon enough. Remember, your tax pro cannot turn back time.
Author: Valentina Efremova
Empowering business owners and individuals in South Jersey and Philadelphia to feel confident through proactive accounting and advisory solutions.
