By Scott Hume
How much do you dread filing your taxes? Not surprisingly, 56% of Americans dislike or even hate tax season. (1) For many, that dread stems from the amount of time and work taxes require, how complicated they are, or the fear of making mistakes. And to add to the fun, the new Tax Cuts & Jobs Act means that we have a slew of new tax reforms to decipher and a new 1040 form to figure out. What was intended to simplify filing taxes for some has complicated it for others, with six new schedules to fill out, depending on your situation.
Regardless of why you would like to stick your head in the sand until after April 15th, taxes are inevitable. The sooner you get everything in order, the sooner you can shake off that looming stress and focus on things you love instead. Don’t be one of the 29 million people who file their taxes at the last minute. (2) Start preparing now and give yourself a head start on tax season by following these four steps.
1. Organize Your Paperwork
Tax time usually means mountains of paperwork. The best way to avoid mistakes or missing out on possible deductions is to get all your documents in order before you start filling out your forms. Make sure you have records of the most common documents you will need, such as:
- W-2, 1099, or other records of income
- Records of charitable contributions over $250
- Information from prior years’ tax returns
- Rental income
- Mortgage interest and property taxes paid
- Dividend income
- Childcare costs
- Medical expenses
Make a master list of all the forms and documents you need, even using last year’s return to remind you what your unique situation requires. As each document arrives in the mail, check it off and add it to your pile. Your organizational efforts today will make filing easier and faster in the end. To help you out, we have created a handy checklist for you:
2. Take Advantage Of Deductions And Credits
Benjamin Franklin may have declared that “nothing is certain except death and taxes,” but that does not mean you can’t do your best to reduce your tax bill. Fortunately, there are multiple credits and deductions that will not only benefit you this tax season but also serve to give your financial future a boost.
Make Deductions Work For You
Just because we have turned the calendar to 2019 does not mean you can’t maximize your retirement savings and reap the rewards on your 2018 taxes. If your employer offers a 401(k), you can contribute up to $18,500 in 2018. If you are over 50, you can also take advantage of catch-up contributions of an additional $6,000. If you don’t have the opportunity to save through an employer-sponsored plan, you can still invest in an IRA, with some income limitations.
Contributions to HSAs (health savings accounts) are also an excellent option to reduce your total taxable income. The 2018 contribution limits for HSAs are $3,450 for an individual or $6,900 for a family. You can also make a $1,000 catch-up contribution if you are over 55.
For the 2018 tax year, you have until April 15th to contribute to HSAs, Roth and traditional IRAs, SEP IRAs and self-employed 401(k)s to benefit from this deduction, so jump on this opportunity to build your nest egg and reduce your taxable income while you can!
Some additional deductions that may also apply to you are state sales tax on major purchases, student loan interest, and medical and dental expenses. Due to the new higher standard deduction, itemizing your taxes and applying these deductions may not work in your favor. Be sure to speak to a professional about tax strategies that will maximize your deductions under the new tax laws.
Research Applicable Credits
Filing taxes can be painful, but depending on your situation, you may be able to benefit from a variety of credits if you know where to look. Many Americans qualify for the Earned Income Tax Credit, and if you or your children attend post-secondary education, you could benefit from the American Opportunity Credit and the Lifetime Learning Credit. There are also credits for saving for retirement and child and dependent care. A qualified CPA will know what questions to ask and what to look for so you don’t miss out on any opportunities to minimize your tax bill.
3. Reevaluate Your Filing Status
Have you experienced a life change this year, such as marriage, divorce, or the birth of a child? Any of these milestones will affect your filing status, which determines your tax rates, deductions, and eligibility for credits. Make sure you are filing under the correct status so you don’t face unnecessary penalties or taxes.
4. Get The Help You Need
Did you know that over 1 million accountants are hired each year in America to help with taxes? (3) There is a reason for that. Working with a qualified and experienced accountant can make your tax season experience as seamless and stress-free as possible. They have the knowledge to help you claim all the deductions you deserve, account for many variables unique to your situation, and answer any and all questions you may have. Their expertise can save you money and give you peace of mind.
Not only that, but a CPA will also provide suggestions that will help you reduce your taxes for years to come, such as offering advice on tax-friendly ways to set up your estate and showing you the benefits of maximizing your retirement savings. Regardless of what your financial situation looks like, you can’t put a price on the value a CPA provides. At Salish Wealth Management, we not only take the lead to coordinate your financial plan with your other financial team members, but we can also help you find a qualified CPA so you can have full confidence in the service you are receiving.
We’re Here To Help
Tax day is looming, but don’t let that stress you out. Between now and April 15th, take these steps to get ready for tax season so you are not scrambling at the last minute. If you have any questions about how to take control of your finances or would like information on how to find the right CPA for you, reach out to us today at (360) 671-5900 or admin@salishwm.com.
About Scott CFP®
Scott Hume is the founder of Salish Wealth Management and a CERTIFIED FINANCIAL PLANNER™ with more than two decades of experience. Prior to forming his firm, he managed two local financial firms. Today, he works with affluent individuals, families, and local businesses to help them plan and execute their financial goals, providing comprehensive financial planning and cross-border investment management. In his free time, Scott likes to spend time with his wife, Darlene, and children, Claire, Curtis, and Corbin, on their hobby farm raising lambs, chickens, and pigs or visiting his grown daughter, Chelsey, in Eastern Washington. He is an active member of The Rotary Club of Bellingham, Bellingham Chamber of Commerce, and The Estate Planning Council. In addition, he is very involved in the local aviation community and is an active member with Cornwall Church, volunteering his time to financial counseling and serving on mission trips in South America. Learn more about Scott by connecting with him on LinkedIn.
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(1) http://www.people-press.org/2013/04/11/a-third-of-americans-say-they-like-doing-their-income-taxes/
(2) http://time.com/money/4742647/tax-day-2017-americans-last-minute-filing/
(3) http://www.businessinsider.com/tax-facts-that-will-make-your-head-explode-2010-4