Big 2018 tax bill? 4 ways to owe less next year
Recent tax legislation includes a bevy of tax breaks for individuals. However, as you may discover when you're filing your 2018 return, not everyone comes out ahead. Loss of personal exemptions, cutbacks in deductions and the suspension of others mean you may end up paying a lot more tax than you thought you would.
Fortunately, you don't have to use the same tax plan you did in 2018. Instead, consider incorporating these four strategies now to help lower your tax bill next time:
- Bunch charitable donations. With the new tax laws, it's more likely that you'll opt for the increased standard deduction instead of itemizing deductions. Therefore, it makes tax sense to bunch large charitable donations in 2019 if you expect to itemize this year.
- Step up retirement contributions. Generally, the contributions you make to qualified retirement plans, such as a 401(k), reduce the amount of your taxable income (up to certain limits). For instance, the maximum 401(k) deferral for 2019 is $19,000 ($25,000 if you're age 50 or over). Similarly, IRA contributions for the 2019 tax year may provide tax benefits.
- Review your portfolio. Could you owe sizeable capital gains taxes in 2019? After you analyze your situation, you might sell securities that will produce losses to offset gains or realize long-term capital gains taxed at preferential rates. The most common rate on long-term gains is 15 percent (20 percent for certain high-income investors).
- Avoid estimated tax penalties. If you'll still owe tax when you file your 2019 return, don't add to the tax damage by failing to pay enough "estimated tax" during this year. This could result in an underpayment penalty. To avoid problems, adjust your withholding and/or increase quarterly installment payments.
Call to set up a meeting to discuss the best tax strategy for your situation for 2019