It’s been 13 days since we arrived in the new year and most of you must be thinking that your tax bill is chiselled in stone in 2019 itself. Well, think again because there are still many resources to reduce your tax liabilities and accelerate deductions. Though we will always be supportive of the fact that most of these opportunities exist till the year ends, there are still options to get a last-moment help.
In this blog, we will throw light on six tips and tricks to help you reduce your tax liabilities and accelerate deductions.
Tip #1: Contribute To Retirement Accounts
If you don’t have a retirement account, then you must create one before the contributions deadline to a traditional IRA or a Roth IRA, which is April 15, 2020. Points to keep in mind are: If you own a Keogh or SEP and are eligible for a filing extension till October 15, 2020, then you can wait until this deadline to put 2019 contributions in a retirement account.
Although making such contributions can help you save taxes, you should still give a sincere thought before you find yourself stumbling into something you aren’t entirely sure about.
To qualify for an annual IRA deduction in 2019, you must:-
- Not be eligible to be a part of a company retirement plan.
- If you are eligible, then you should have an adjusted gross income of $64,000 or less, if you’re filing as a single, and $1,03,000 or less, if married and filing jointly.
- Your traditional IRA contribution will be fully deductible, if you and your spouse’s combined gross income is not more than $1,93,000 in a situation where you are not eligible for a company plan, but your spouse is.
As far as 2019 is concerned, you will only be able to make a maximum contribution of $6,000 ($7,000 being the limit for citizens aged 50 years or above by the year’s end). If you are self-employed, then the maximum annual addition to SEPs and Keoghs for 2019 would be $56,000.
The tax exemptions you get for making such contributions will vary- if you fall in the 26% tax bracket, make a deductible contribution of $6,000, then the amount you would save would be $1,500 in the first year. Over time, the same can be increased based on your contributions, income tax bracket, and the number of years you keep this money invested.
Tip #2: Last Minute Estimated Payments
If you didn’t check the exact amount of your estimated payments and paid less to the IRS in 2019.Then, there are high chances that you are going to face a big tax bill along with significant penalties and interests too.
According to IRS rules, you should:
- Pay 100% of last year’s tax liabilities and 90% of the current year’s tax liabilities, or you can face an underpayment penalty.
- Pay 110% of your 2018 tax liability if your gross adjusted income for 2018 was more than $1,50,000. This will save you from a 2019 underpayment tax penalty.
The catch here is that you can erase the penalty for the fourth quarter if you make such estimated payments before January 15, 2020, but the penalty for the previous quarters would still be charged on your tax bill.
If you have received your income windfall after August 31, 2019. Then, you can fill and submit the Form 2201: ‘Underpayment of Estimated Tax’, and annualize your estimated tax liabilities and reduce these extra charges.
Tip #3: Organize Your Tax Records
Many of you might find organizing tax records as a significant tax time hassle. We can understand getting all those documents like last year’s returns, this year’s W-2s and 1099s receipt, etc. together can be taxing. Here is what you can do:-
- Prepare a checklist of all the documents you need to file your 2019 returns.
- Collate all the information that reaches you through the mail in January like W-2s and 1099s and mortgage interest statements, etc. Ensure not to throw any tax data that might seem unimportant at the moment.
- Collect all the receipts that you must have piled up during the year.
- Group similar documents and different files.
- Get all the data related to the prices paid by you for stocks, or received by you when you sold some.
- Find out all the information on income from rental properties. Not assuming that your tax-free municipal bonds are totally tax-exempt would be a smart call.
Keeping all this information handy will help you save time and not miss out on anything which might cause you extra tax, penalty, or interest.
Tip #4: Find The Right Tax Forms
You can find all the relevant tax forms online on the IRS website. Assuming to find all in the post office or library might not be very smart. Visiting the IRS website for this can enable you to,
- Search and access documents dating back to the 1980s by number or by date.
- Redirected to websites where you can find state forms and publications.
Tip #5: Itemize Your Deductions
We understand it’s easy to go with standard deductions, but you will save more if you itemize your deductions, especially if you are self-employed, own a home, or reside in a high-tax area.
- It would be worth itemizing if your qualified expenses are more than 2019 standard deductions. For singles, the limit is $12,200 and for married couples, filing jointly, it is $24,400.
- Deductions like mortgage interest and charitable donations are well known.
- If your medical expenses exceed by 7.5% of your adjusted gross income for 2019, then you may deduct a portion of them by itemizing.
Tip #6: Provide Dependent Taxpayer ID On Your Tax Return
Ensure to provide Social Security Numbers (SSNs) and Taxpayer Identification Numbers (TINs) of all your dependents like your children, parents, etc. By doing so, you can earn dependent credits like the Child Tax Credit and reduce your tax liabilities. Points to keep in mind are:-
- In case you are divorced, then either you or your spouse can claim your children as their dependents and in no condition, both of you can. The IRS keeps a close watch on such things and doing so might lead to bringing your tax returns to a halt while you make necessary corrections.
- If you have a newborn, then ensure to get their social security card right away to add in your returns.
- If you don’t have a social security number of your dependent that you need to add in your returns, then the IRS suggests filing for an extension rather than filing an incomplete return.
The MyTaxFiler team suggests you explore all tax-saving options before the year ends because many of them are available for the taking in the new year. Don’t get disappointed because there is still much you can do to reduce your tax liabilities and earn tax credits. Feel free to get in touch with the MyTaxFiler team to explore all your tax-saving options before the tax filing deadlines closes down on you.