Implementing changes now and putting recommendations into motion will make you a much happier person come next year.
The 2019 tax season has ended (unless you filed for an extension until October 15, 2019) and you’re probably ecstatic that you can forget about taxes again for a whole year. However, by doing so, you could be making next year’s tax season a lot harder on yourself. We as individuals file one tax return per year, but taxes affect you each and every day, 365 days a year. If you grasp this concept, learn from your prior years and begin to prepare for this year’s (2019) taxes now, you will make your life a lot easier and much happier in the end. Here are a few simple steps you should take now to get ready.
Decide whether to adjust your federal and state withholding
If you are a waged employee, Uncle Sam takes a piece of your earnings from each paycheck. The amount it takes depends on how much you earn and how many allowances you’ve claimed when you filled out your W-4 form. The more allowances you claim the less money the government takes and vice versa. If you claim more allowances, your paychecks will be larger, but your tax refund check could be smaller because the amount you pay in throughout the year is closer to your actual tax liability. You don’t want to claim more allowances than you should, or else you could owe taxes at the end of the year. Sometimes that’s not a bad thing. Breakeven to owing a little bit of money in my book is a win. It means that your withholding allowances were in line and that the government didn’t get free use of your money during the year. We have this conversation with our clients all the time, some agree, some disagree. It’s all about personal preference.
Go back and look at your 2018 tax refund check. If it was a big figure (several thousands of dollars) that is a sure indication that you’re not claiming enough withholding allowances. Contact us if you’re confused with what to do or inquire with your company’s Human Resource department if you’re not sure how many allowances you’re claiming now. You chose your allowances on the W-4 form you filled out when you started your job, but you can change it at any time by submitting a new W-4 form to your employer. As many times as you wish…….
Set up a system to track deductible expenses
This mostly applies to self-employed individuals, who may need to deduct travel, office expenses, and other business-related costs on their taxes. But there are other deductions that anyone can qualify for, like medical expenses that exceed more than 10% of your AGI (adjusted gross income) or excise tax or charitable contributions that you made to a nonprofit organization.
Keep a folder with your receipts and all paperwork related to your deductions so you have them all in one place when it’s time to file your taxes next year. If you don’t like the idea of hoarding paperwork, consider scanning all your receipts and tax documents into your computer so you have digital copies instead. To be safe, make sure to back them up so you don’t lose them.
Plan for estimated taxes if you’re self-employed
Self-employed individuals must pay quarterly estimated tax payments, since they do not have withholding taxes as if they were waged employees. Failure to pay estimated quarterly taxes could result in penalties.
If your AGI (adjusted gross income) was less than $150,000, to avoid any underpayment penalty, you would need to pay in at least 100% of your 2018 tax liability or 90% of your 2019 liability. If your AGI was greater than $150,000, then you would have to pay in at least 110 % of your 2018 liability or 90% of your 2019 liability. These are known as the “safe harbor rules”. Follow these rules and you can’t go wrong.
For 2019-2020, the deadlines for making estimated tax payments are:
- April 15, 2019
- June 17, 2019
- Sept. 16, 2019
- Jan. 15, 2020
Let us familiarize you with the latest changes to the tax law
Each and every year, the government modifies and tweaks the tax laws a bit. AGI (adjusted gross income) limitations often change slightly, as do the amounts and rules required for some tax deductions and credits. We don’t expect you to understand every single rule, although the government does, but it’s a good idea to familiarize yourself with the key changes that could affect you in the coming year. For example, if you’re now on the bubble between two tax brackets, you may want to contribute more monies to a qualified tax-deferred retirement plan or accelerate some of your itemized deductions so that you stay well within the lower bracket. The result; more money in your pocket and not Uncle Sam’s. Here is a link https://money.usnews.com/investing/investing-101/articles/know-these-6-federal-tax-changes-to-avoid-a-surprise-in-2019 to the 6 most important 2019 tax changes.
“Nothing is certain but death and taxes”, but with a little guidance and the proper planning, life can be a lot easier. Give our office a call or send us an email and allow us the opportunity to navigate the process for you. You’ll thank yourself for doing so.