If you haven’t filed your 2018 taxes yet, you’re not alone. In fact, many taxpayers wait until the last minute. But with Tax Day less than two weeks away, it is time to get the necessary documents together to prepare and file your taxes or to request an extension through the IRS.
Many taxpayers have found they owe more money this year than in previous years due to the changes brought about by the Tax Cuts and Jobs Act. One contributing factor is due to wage earners not completing the IRS’ recommended paycheck checkup, which ensured the accurate amount of federal tax was being withheld from paychecks. If you haven’t performed a paycheck checkup yet, and want to avoid another tax time surprise, read this blog to find out how.
So, in the final days, how do you make your 2018 taxes as painless as possible? While you can’t turn back the clock, there are a few last-minute things you can do to lower your 2018 tax bill. Here are six tax tips to consider.
1. Retirement Plan Contributions
One of the best and most well-known, last-minute ways to lower your tax bill is by contributing to your retirement plan. Here are the 2018 contribution details for traditional IRAs and SEP IRAs:
Traditional IRA: Tax-deductible contributions for the 2018 tax year can be made until the April 15 tax deadline. If you don’t yet have an IRA, you can still open one now and contribute retroactively for 2018, as long as your contributions are made before April 15. Maximum contribution amounts for the 2018 tax year are capped at $5,500 or $6,500 for individuals 50 years of age and older.
SEP IRA: Self-employed individuals with Simplified Employee Pension (SEP) IRAs can contribute even more money and for a longer a period of time. If an extension is filed by the tax deadline, tax-deductible contributions for the 2018 tax year can be made up until the October 15 extended tax deadline. Maximum contribution amounts for the 2018 tax year are capped at 20 percent of the taxpayers' net self-employed income, not to exceed $55,000.
2. Contribute to Your Health Savings Account
As with IRA contributions, income moved to Health Savings Accounts (HSAs) are also tax-deductible and can still be made up until the April 15 filing deadline for those with an eligible high-deductible health insurance policy. Here is the breakdown:
Individual HDHP: Contribution capped at $3,450 for the 2018 tax year.
Family HDHP: Contribution capped at $6,900 for the 2018 tax year.
Age 55 and Older: Additional $1,000 catch-up contribution for the 2018 tax year.
3. Consider Itemizing Deductions
In previous years, approximately 30 percent of taxpayers itemized, with 70 percent using the standard deduction. This year, fewer people will be itemizing on their tax return as a result of the Tax Cuts and Jobs Act. In fact, the Joint Committee on Taxation estimates 94 percent of taxpayers will use the standard deduction this year. Why? For the 2018 tax year, the standard deduction nearly doubled from the previous year. Those who itemized last year should review their 2017 tax return to see if itemizing still makes sense. Here are the increased 2018 standard deduction amounts:
Married and Filing Jointly: Standard deduction of $24,000, up from $13,000 in 2017.
Single Taxpayers and Married, Filing Separately: $12,000, up from $6,500 in 2017.
Head of Household: $18,000, up from $9,550 in 2017.
4. Don’t Forget Work-Related Dependent Care Expenses
If you paid someone to care for one or more of your children or dependents while you worked or looked for work in 2018, then you may be eligible for the child and dependent care credit which helps to ease the expense of daycare costs for working parents. Dependents and children are defined as 12 years of age or younger at the end of the tax year in which you are filing, a spouse if they are unable to care for themselves and lived in your home for at least six months out of the tax year, or any other person who you claimed as a dependent on your return who cannot take care of him or herself and lived in your home for at least six months of the tax year. Eligible provider expenses include daycare, preschool, summer day camps (no overnights) and babysitting.
5. Receive a Credit for Pursuing a Higher Education
We can all agree on this, right? College is expensive! With the Lifetime Learning Credit, you can receive a tax credit up to 20 percent of the first $10,000 you pay for tuition each year. The maximum credit is $2,000 per year and it is a collective cap, meaning you can’t claim the credit for each student. Qualifying persons include you, your spouse and/or any of your dependents. According to the IRS, the credit can help pay for undergraduate, graduate and professional degree courses — including courses to acquire or improve job skills. There is no limit to the number of years you can claim the credit. To find out more about eligible educational institutions, visit the IRS’ website here.
6. Plan in Advance
Finals words of wisdom - start planning for your 2019 taxes today. You’ll be able to take full advantage of applicable credits and deductions, as well as having everything organized in advance. And if you owed more than you planned for, don’t forget to complete the IRS recommended paycheck checkup.
Disclaimer: This information is considered educational information only and is not to be taken as personal advice. Please consult a financial professional.