The Tax Cuts and Jobs Act that has fueled changes in our most recent financial practices as tax professionals had many taxpayers excited to receive a larger than normal refund during this past filing season. The benefits and disadvantages of the new law were seen by every individual, whether it was the increased (nearly doubled) standard deduction or the limitation on the itemization of state and local taxes. Some taxpayers were left wondering where they went wrong during the year and what they can do to make next year’s results better than ever.
- Paycheck Checkup – Tax Withholding Calculator : If you receive a w2, it is a great idea to do a paycheck checkup. With the simple tools offered by the IRS, you can quickly estimate if your withholding is in line with your tax liability. The IRS.gov website (https://www.irs.gov/paycheck-checkup) offers an easy-to-use calculator that can save you a major headache at the end of the year. If you are not withholding enough federal taxes, you will need to complete a new federal form w-4 and submit it to your employer.
- IRA Contributions (excluding Roth plans): The amount a taxpayer can contribute to an IRA is limited by our federal government. However, this is a great opportunity to save for retirement and reduce tax liability at the same time. For 2019, the contribution limitations for a traditional IRA are $6,000 with a limitation of $7,000 for taxpayers aged 50 and older. Certain income level limitations as well as spousal contribution limitations exist for all types of taxpayers and should be considered when adjusting your contribution levels. Some employers offer retirement benefits to their employees. Contributions to these accounts are typically made pre-tax and reduce your taxable income as well. If your employer does not offer this type of program, or you missed open enrollment, check with your local financial advisor or investment broker to find out how you can increase or begin your deferment.
- FSA and HSA Accounts for Medical Expenses: Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs) allow contributors to set aside a portion of their paycheck for medical expenses in a pre-taxed deferral. Individuals can defer up to $2,700 in 2019 for a health FSA, and up to $7,000 for a family HSA plan. If you are an employer, this is a great option to consider offering your employees. Consider enrolling in a plan with your employer or through a local insurance broker to receive the benefits of these types of programs. With the increased standard deduction, these may be the only options for some taxpayers to receive tax benefits for their medical expenses.
- Saver’s Tax Credit: Unlike the IRA and 401(k) contribution benefits, the saver’s credit is worth up to $1,000 ($2,000 for married filing jointly). The tax deduction seen with the IRA and 401(k) contributions reduce income, whereas the saver’s credit allows for a dollar-for-dollar reduction in tax liability. If your gross income is under certain thresholds and you are still contributing to an IRA or employer sponsored retirement plan, check with your tax preparer to see if you qualify for this credit.
- Tax Planning: Tax planning is critical to the success of many businesses. It can provide insight to the new tax law and the benefits available to taxpayers at an individual level. The new tax law has left many taxpayers with unanswered questions and the truth is, an educated tax professional can make a huge difference when preparing an income tax return. When consulting with your tax preparer throughout the year, you can create a plan and timeline that will best suit your unique needs. Unfortunately, many taxpayers will not consult with their preparer until several weeks before the due date of their returns, leaving very little room to make changes to their budget. It is generally best to reach out to your preparer during the summer to ensure you are taking advantage of as many programs as possible.
What do I do now?
Don’t have a seasoned tax preparer in your corner? Call AgriSolutions today at 618-372-3000 to schedule an appointment for tax planning. Our preparers are well versed on all five of these topics, among many others, and can help you position yourself for a successful 2019 filing season.
Disclaimer – Descriptions provided in this article are presented as generalities. There are many factors not listed above which may impact your return. This article should not be considered legal or tax advice. For advice on a specific transaction, please contact the AgriSolutions Tax Department at email@example.com.