Can you believe that we are halfway through the year already? This is a good time to make sure that you are making the best choices for your tax health.
As you reviewed your tax return this year, were you surprised by the results? Many people were shocked by their balance due. So many, in fact, that the IRS implemented some penalty relief. Two things affect your balance due or refund: withholding and estimated taxes. The IRS developed withholding tables to assist your employer in determining the correct amount of tax to withhold from your paycheck. This was a problem in 2018. With the new tax law, the IRS tables were wildly inaccurate. The good news is that you can change your withholding whenever you want. By completing a Form W-4, you can take additional withholding from each paycheck to minimize your balance due.
Here are some tips to help make tax time 2020 less stressful.
Check Your Withholding: The best thing that you can do to decrease the uncertainty about your taxes is to withhold the proper amount. This is a good time to do this, because you have enough of the year under your belt to have a good idea about your income and withholding, but enough time to do something about it if you need to make a change.
Check Your HSA deferral: Are you deferring as much as you can? The contribution limit for self-only plans is $3,500; the limit for family plans is $7,000. If you aren’t contributing the maximum, but can afford to defer more from your paycheck, increase your HSA contributions to the maximum. It’s a good way to save for serious illness, even if you don’t use it this year. There is also a catch-up contribution of $1,000 for 55 and older.
Check Your Retirement deferral: Much like the HSA, you may not be deferring as much as you could for your retirement. Increase your retirement deferral as much as you can without putting yourself in a bind financially during the year. Also, note that there are some limits on how much you can contribute, based on several factors.
Have You Considered an Individual Retirement Account? If you aren’t participating in a retirement plan at work, consider contributing to an Individual Retirement Account (IRA).
Have You Paid Your Quarterly Estimated Tax Payments? Some taxpayers and businesses have a requirement to make quarterly estimated tax payments. The next due date is September 16.
Have you Reviewed Your Entity Structure? Is operating your business as a Sole Proprietor still the best structure for you? With proactive tax planning you can review your entity choice to restructure how you are operating your business.
Is Your Bookkeeping up to date? Many business owners wait all year long to do their bookkeeping, as a result you cannot find your records or acquire financing to help grow your business because your books are not well kept. It is also good business practice to know how your business is performing throughout the year.
Did You file your 2018 Taxes? If you have not filed your 2018 tax return and you are on Extension, the tax deadlines are coming up in September and October. Review your paperwork to see what you are missing and stay in compliance. This is another way to help you prepare for tax year 2019 taking into account the new tax law changes.
Will You Be Ready for Year-End Tax Planning? With meticulous tax planning, you can know how much your balance due or refund is well before your taxes are due. This can help lessen the stress around tax time.
Tax Planning is the Key? Failure to Plan is Planning to Fail.