We are now well underway into 2019, however, it isn’t too late to make some tax planning decisions that will make next tax season a little less dreadful. When you filed this year, you might have seen a significant change in your tax refund, or lack thereof. This is because we saw the Tax Cuts and Jobs Act of 2017 take full effect in 2018, with the impact now being felt this past tax season.
The changes affected everyone differently with, no doubt, business owners and corporations likely feeling the most relief. Another change that occurred, which many individual filers were unaware of, was a change in the withholding schedule issued by the IRS. Maybe you didn’t personally change your withholding for last year but with the IRS redefining withholding amounts it could have made an impact on you without you even realizing it. That leads us to tax planning tip #1.
1) If you are a W2 employee, revisit your tax withholding
This can be done by contacting your tax accountant, or visiting the IRS website.
Withholding too much means your refund will be higher come tax time, but you are also getting a smaller paycheck than you could be receiving and, in so doing, you are actually giving the IRS more than you need to which they’ll send back next tax season. Essentially you are giving the IRS an interest-free loan. Some people actually like this because they dread the thought of owing at the end of year, they prefer a cushion. For others it is used as sort of a forced savings plan. Still others find withholding too much problematic; they’d just prefer a bigger paycheck.
If you talk to an accountant or check out the calculator, you can get an idea as to how much tax you’ll owe for the year and be sure Uncle Sam get’s paid what he is owed and not a penny more.
2) If you own a business, take advantage of Section 179 — but only if it makes sense for your business
The new tax law made a change to Section 179 which had many business owners excited. They raised the maximum deduction a business owner can take for expensing new equipment in the first year from $500,000 to $1,000,000.
It’s true this can be a great tax benefit, but we strongly encourage you to use it as a tax planning opportunity only if the purchase makes sense from a business perspective. Does the equipment increase your profitability? Does it help you grow? Purchasing equipment solely for the tax deduction can be dangerous and bad business planning. However, if it fits within your overall business plan and helps your business grow it can be a great tax savings opportunity.
3) Consider an HSA plan
Now that the standard deduction is much higher, we are seeing less people itemizing. This means medical bills you might have deducted before now don’t make that big of a difference, especially if you take the standard deduction. Because of this, HSAs are looking even more attractive than ever. High deductible health savings plans are bank accounts that you are allowed to fund with pre-tax dollars provided you use the funds to pay for qualified healthcare costs in conjunction with a high deductible health insurance plan. There are rules to follow so be sure to talk with a tax professional about how to take advantage of this tax benefit.