Whether you receive a big refund or pay taxes on tax day, taking action now can ensure next year’s tax bill is optimized by not paying more than necessary.
- Update paycheck withholdings and forecast estimated tax payments. Reviewing and updating withholdings now gives you several months to spread out the tax impact on your daily finances. Adjust your paycheck withholdings using Form W-4 with your employer to either increase or decrease your anticipated refund. If you are self-employed, you can simply adjust your quarterly estimated payments. Other factors will change your 2019 tax liability, but using your 2018 refund or tax bill as a baseline to update withholdings is a good first step. Just make sure your withholding will cover 90 percent of this year’s tax bill or you may be subject to an underpayment penalty (110 percent if your income is over $75,000 for singles or $150,000 for married couples).
- Organize last year’s tax records. Create a file to hold your completed tax return, supporting schedules and documentation. Organize the file so it matches the flow of the new Form 1040 — income documents first, followed by deductions, credits and estimated payments. Doing it this way allows for easy access to your records in the event of an audit. Once you finish with last year’s file, create a checklist of expected documents and a new file for 2019. This will help you keep track of your tax paperwork during the year and speed up the tax filing process in 2020.
- Schedule a tax planning appointment. Mid-year tax planning is essential to ensure the proper roadmap is in place to realize your tax goals. Using your 2018 tax return is a good starting point for your plan, but it’s not enough. Getting married or divorced, planning for retirement, having or adopting a child, buying a house, paying for college, starting a new job, or getting a raise are just some of the life changes that can dramatically change your tax situation.
Most of us want to forget the hassle of tax season as soon as the form is filed, but the savvy taxpayer uses this time to prepare and plan for a better tax result next year. Please call if you’d like assistance.
This article carries no official authority, and its contents should not be acted upon without professional advice. For more information about this topic, please contact our office.