April 15, 2020, is not so far, and we are here with some interesting tax-saving tips that will help you control your rapidly increasing taxes. The U.S. taxpayers filed taxes in 2019 under the Tax Cuts and Jobs Act. While, for some, the experience was good, but a few in the bluer states witnessed a rise in their taxes.
There have been certain changes in the tax brackets for allowable deductions which have altered the tax situation of many taxpayers. The same has always been more cumbersome for self-employed and business owners. Nonetheless, many taxpayers have to pay a certain percentage of their taxes before the New Year to avoid IRS penalty.
This makes it even more critical for you to plan your taxes properly since the tax filing deadline is drawing closer by the day. Let us walk you through some useful tips that can help you plan your taxes effectively and get a tax break.
Deadline for Retirement Account Contributions
The date and amount of your contribution depends on the type of your chosen plan and contribution. The benefit for those of you who hold a ROTH IRA to Traditional IRS is that you can fund your account till April 15 2020. The only drawback that accompanies such types is that the maximum amount of contribution is $6,000, which might not be enough for a secure retirement.
For those of you who are self-employed, you can consider the SEP-IRA or Solo 401 (K) plan. Such plans have a later contribution deadline and a higher contribution limit.
Check Your Tax Withholdings
We would suggest you check your withholdings to avoid being shocked by a lengthy and unexpected tax bill. Tax withholding is the amount deducted by an employer from their employee’s paycheck and paid as taxes by adding an equivalent employer contribution. Many a time, employers deduct more or less amount of withholding from their employee’s paycheck, which later becomes a problem for the employees while filing their taxes.
This becomes more troublesome for couples who have switched jobs or have multiple jobs. If you are self-employed, then make sure that you have paid sufficient quarterly taxes throughout the year.
So, calculate and determine the right amount of your withholding by using the Withholding Calculator on the IRS website and submit the certificate to your employer.
Standard Deduction vs Itemizing
As per the 2019 trends and under the Tax Cuts and Jobs Act, many U.S. taxpayers have opted for standard deduction in comparison to itemizing. As per stats, previously 30% of taxpayers filed a Schedule A to itemize their tax deductions, but under the Trump tax plan, the percentage has dropped to 10%.
The reason for such a drop is attributed to the $10,000 cap of State and Local taxes of Trump tax plan. This reform makes taxpayers living in high-value real estate areas expensive. And the worst part is that the cap stays the same irrespective of the fact that you are single or married. With this in mind, it might be simple for singles to itemize their tax deductions.
For 2019 taxes, the standard tax deduction is $12,200 for singles and $24,400 for couples filing jointly. This makes filing your taxes using standard deduction much simpler and convenient.
Year-end tax-loss harvesting
Relook at your investments in non-retirement accounts. You can consider selling out some winners or losers depending upon your tax situation this year. This may enable you to realize up to $3,000 in short-term losses and off-set $3,000 of regular income per year. Also, unused short-term losses can be carried forward for future use as well.
Required Minimum Distributions
For those of you who are retired and turning 70.5 years or are this age, you need to take Required Minimum Distributions (RMDs). The deadline to complete this process is December 31, 2019. And the amount you would need to take out will depend upon your age in combination to your account balance as on December 31, 2018.
We understand you indulge in charity to give back to society and to receive a nice tax deduction might help you give more money for the same. With the majority of taxpayers going for the standard deduction, less number of people are getting any benefits for their charitable donations. You can earn a tax deduction by planning your charity strategically and giving several years’ worth of gifts in a single year to reach the threshold. By reaching the threshold, you can then itemize your deductions and earn a tax break.
If you are considering to do this, then you might want to use the donor-advised fund. By using this, you can make contributions and get tax deductions now, but distribute funds to charity on a later date.
Consult a tax expert if you own cryptocurrency
Cryptocurrency and tax regulations related to it are quite complicated for non-tax background individuals. If you own any and don’t want to come on the IRS radar, then consider consulting a tax expert who can help you file your taxes keeping the technicalities of cryptocurrency in mind.
Qualified Interest Business Deductions
If you are self-employed or own a business, then you might be eligible for Qualified Interest Business Deduction. The Qualified Business Deduction is also known as the 199-A Pass-Through Business Deduction. The deduction helps you gain a 20% deduction on your net income if you operate as a pass-through entity. You would be qualified to get this deduction if you earn an income of more than $160,725 (single) or $321,400 (married filing jointly) in 2019.
The Bottom Line
Following these pro-tax-tips, you can make a significant difference in your due tax returns. Being aware of such little things make a more substantial difference because they earn you valuable tax breaks and help reduce your liabilities. It is more about planning smartly and making the most of the available tax laws and codes. If you want to explore more into this and understand the best possible ways to file your 2019 returns, you can contact your MyTaxFiler expert leverage the best for your 2019 federal income tax returns.