Tax season can be a stressful time as we think about paying our taxes. Reducing the taxes you owe may be easier than you think and it’s about more than saving money. It can help you to be more giving, provide for your children’s education, run a thriving business, and set yourself up for a better future.
Here are 5 of the best ways to save on your taxes in 2019:
1. Bunch up your itemized deductions
With the newly doubled standard deduction thanks to the Tax Cuts and Jobs Act, many Americans feel there’s no point in itemizing deductions. One of the main purposes of the increase was to simplify reporting by cutting back on itemizing deductions, but you can still have your cake and eat it to.
If you bunch your itemized deductions together into one year, you may be able to exceed the standard deduction and take the full benefit of what you itemize. Next year you’ll have much less to itemize, but you’ll still get the standard deduction, bringing your average deduction for both years up (often significantly).
You could do this by condensing your charitable giving into one year, pre-paying a mortgage payment or property tax bill (if applicable), or taking care of some medical expenses. Just check to ensure the particular expense can be claimed during the tax year.
2. Save for school
If you have children looking at college down the road, you can realize substantial tax savings with a 529 college savings plan. This plan allows you to save for college and later withdraw the money tax free as long as it’s used to pay qualifying education expenses.
Placing money into the plan is a gift to your children, and this year there is no gift tax up to $15,000 dollars.
3. Give Wisely
One of the best ways to reduce your tax burden is to give wisely. It may seem obvious that charitable giving would save on taxes, but there are a few best practices to maximize your savings.
Remember that you can give either cash or property to a charity to reduce your taxes. Make sure you keep documentation showing the amount or the market value of the property given. Depending on whether it is a private or public charity you can deduct up to 30 to 50% of your adjusted gross income as a charitable donation.
If you want to donate stock investments, make sure to follow the best route. Appreciated stocks given to a charity can save you from paying capital gains tax, as long as you’ve held the stock for at least one year.
If your stocks have declined in value, consider selling them instead to harvest the capital loss and then donating the cash proceeds.
4. Save for the future
Make sure you maximize your contributions to any retirement accounts, such as a 401(k) or IRA. These will help you reduce your taxes while also setting you up for a better retirement.
If you’re reading these tips too late, don’t worry. You can generally contribute to your IRA until the April tax deadline and claim a deduction for the prior year.
5. Mind your business
If you’re a business owner, you have some great opportunities for tax savings. Even if you run a small side hustle that brings in a few bucks, you can claim deductible expenses and possibly even offset other income with any losses you may incur. To do this, the IRS needs to see that you are a legitimate business and not just a hobby.
Many business owners miss out on home office deductions. With the increasing convenience of technology, even business owners with brick and mortar stores often work from home in some form. You can claim deductions for a fraction of utility bills, phone and internet based on business use, along with any travel expenses incurred in your personal vehicle to conduct business. These can really add up for many business owners.
If you have questions about 5 Tax Saving Tips for 2019, contact me for a consultation. I’m an Illinois licensed, Registered Certified Public Accountant with over 25 years of experience. I’m dedicated to providing outstanding tax and accounting services to individuals and small businesses in the Chicago area.
Disclaimer: Any accounting, business or tax advice contained in this article, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, I would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.