Struck down by high 2018 taxes? Here’s how to reduce income tax for 2019
Tax season just wrapped up and many of our clients were surprised by receiving very little in refunds or even owing more taxes than they anticipated. The main reason was the change in tax code. If you’re wondering how to reduce your income tax, here are some tips about how to reduce income tax for 2019.
2018 Tax Code Changes and Their Impact
Let’s be real: taxes aren’t everyone’s favorite subject. In fact, most people will fail to pay any attention to tax code reform until it becomes an absolute necessity.
Unfortunately given the sticker shock that many are feeling from their 2018 filings, this has become the case.
The 2018 tax code changes had a bigger impact than most people anticipated. The new law brought in new tax brackets and changes in itemized deductions. For example, there was a $10,000 cap for state taxes and property taxes. The new code also eliminated the miscellaneous deduction that many people were used to.
To summarize, who was most affected in 2018 tax season?
People who did not review their withholdings and failed to make appropriate changes
People who used to get larger itemize deductions from property tax, state taxes, and miscellaneous deductions (such as investment advisory fees)
People who ended up with standard deductions and didn’t deduct charitable donations
People who used to deduct large job expenses and were unable to under the new tax code
Many were surprised to see the reform impact the rate at which taxes were withheld from their paychecks. For information about how tax law changes impact withholdings for 2019, please refer to this article.
But aside from your withholding, let’s look at other ways to reduce income tax for 2019.
Ways to reduce income tax for 2019
Not willing to make a pattern out of paying higher than anticipated taxes? We don’t blame you. There are several ways to reduce income tax for 2019.
One of the best ways to reduce your income tax surprise for 2019 is to review your withholdings and use W-4 form to make changes if needed. There’s an IRS withholding calculator here for you to use. Reviewing your withholdings is important because it will protect you from not withholding enough tax and having to chalk up a big payment at the end of the year. If you suffer from this plight with your 2018 return, it’s likely you’ll experience the same thing again unless you make changes.
Take advantage of pre-tax work benefits
Review your work benefit and enroll for as many pretax deductions as your benefit plans allow. Some examples of ways to reduce your income tax for 2019 using employer sponsored benefits are:
Retirement plans such as 401k or 403b plans,
Health saving accounts (HSAs),
Dependent care flexible savings accounts (FSAs)
We’ve been using a Sharefile tax folder as a central hub to share tax documents with our client’s accountants for many years. This year we experienced a greater success with more client adoption. We found that in addition to what was required, clients uploaded additional personal tax documents. We received positive feedback from accountants for this efficient document sharing/organization method. If you are a client, we encourage you to use our Sharefile tax folder to upload your tax documents.
In a past blog, we outlined ways to archive your tax documents so that you aren’t caught in a pinch if you need them. But it will also be useful if you want to take advantage of ways to reduce income tax in 2019. Having your past tax history at your fingertips, free of all the clutter from the past and easy to find, you’ll have an easier time at staying organized.
We encourage you to read The #1 Thing You’d Never Think to do During Tax Season (But Should).
Proactive tax planning
Talk to your financial advisor and/or accountant and get a jump on your 2019 taxes. It’s never too early to start thinking about this. For example, with QBIT, or qualified business income tax, think about the deductions you can take as a small business. Does it make sense to restructure your salary versus taking a distribution? This question and more are ways to reduce your income taxes for 2019 that are worthy of consideration.
Take advantage of tax resources
Lasso in all the help you can get! We’ve listed a few options out on our website. You can find ways to reduce your income taxes for 2019 by utilizing the free information available to you from institutions such as Fidelity Investments and Charles Schwab. Click here for resources such as tax worksheets, information about foreign tax credits, tax center pages for investors, etc.
We ‘d love for you to take a look at our Supplemental Tax Information Resources page.
Don’t wait until 2020 to address your 2019 return
We’ve written before about the importance of end of year tax planning. You should be thinking about ways to reduce income taxes for 2019 all year round, but it is especially important in the last few months of 2019. Don’t miss the opportunity to make last minute changes before the year ends. Mark your calendars now! Examples of ways that you could use end of year tax planning would be to use account options strategically, bunch of expenses such as healthcare costs for the year, rethink insurance coverages, execute a Roth conversion, and many more!
Summary of how to reduce income taxes for 2019
Taxes are one of the largest drains on personal wealth that any one person faces in his or her lifetime. If you’re reeling from the tax law reform, you don’t have to suffer through another year of paying taxes higher than you had expected.
Keep in mind that finding ways to reduce income taxes for 2019 is highly specific to your personal situation. If you’d like to know more, reach out to us for a consultation.