With summertime activities in full swing, tax planning is probably not on the top of your to-do list. But putting it off can create problems at the end of the year when there’s little time for changes to take effect. If you take the time to plan now, you’ll have six months for your actions to make a difference on your 2019 tax return. Here are some ideas to get you started.
- Know your tax breaks. Look at your 2018 tax return and check your income, deductions and credits. In 2019, will you be able to take advantage of all the tax breaks you were eligible for in 2018? For example:
- Are you expecting more income that will bump you to a higher tax bracket?
- Will increased income cause a benefit to phase out?
- Will any of your children outgrow a tax credit?
Any changes to your tax situation will make planning now all the more important.
- Consider taxes when making investment decisions. If you have stocks that have lost value and you’ve owned them for less than one year (short-term), selling them now before they change to long-term stocks can offset up to $3,000 in ordinary income this year. Conversely, appreciated stocks held longer than one year may be candidates for potential charitable contributions or possible choices to optimize your taxes with proper planning.
- Adjust retirement plan contributions. Are you still making contributions to retirement plans based on last year’s limits? Maximum savings amounts increase for retirement plans in 2019. You can contribute up to $13,000 to a SIMPLE IRA, up to $19,000 to a 401(k) and up to $6,000 to a traditional or Roth IRA. Remember to add catch-up contributions if you will be 50 by the end of December.
- Plan for college expenses. The school year is just around the corner, so make sure you understand the various tax breaks that are available for college expenses in order to maximize your tax savings. There are two tax credits available, the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit. There are also tax benefits for student loan interest and Coverdell Savings accounts. Add in 529 college savings plans, and it’s easy to see why an educational tax strategy is best established early in the year.
- Add some summer vacation to your business. If you own a business, you might be able to deduct some of your travel expenses as a business expense. To qualify, the primary reason for your trip must be business-related. Keep detailed records of where and when you work, and be sure to get receipts for all ordinary and necessary expenses.
Great tax planning is a year-round process, but it’s especially effective at midyear. Making time now can not only help reduce your taxes, it also helps put you in control of your entire financial situation.