Year-End Tax Prep Tips
It’s that time of year again.
Time to start thinking about getting your ducks in order for tax filing. This year it’s important to be reminded of the changes that were put in place late last year. With the passing of the tax reform bill, there are significant changes that could affect your returns or how much you owe.
Check Withholding To Avoid Underpayment Penalties
You may have forgotten that tax brackets were expanded in the reform. There’s a chance you could be penalized for underpaying taxes throughout the year. So, now is the time to double check your withholding. You can bump it up if necessary and avoid penalties. If you have a year-end bonus coming an increased withholding could help you side-step a tax penalty.
Decide Whether To Itemize Or Not
If you are accustomed to itemizing deductions, you may decide to take the standard deduction in 2018. You’ll have the company of millions of other taxpayers who routinely itemized deductions in past years. That’s because the standard deduction is doubled and because dozens of itemized deductions have been repealed. Additionally, the state and local tax deduction is capped at $10,000.
With all these factors in mind, you may want to avoid any year end spending on things that would previously generated an itemized deduction. This includes charitable gifts and elective health care procedures.
If You Do Choose To Itemize
If you don’t take the standard deduction and decide to itemize, and if you plan on making a charitable donation before the end of the year, remember if you’re making a cash contribution to get documentation. If you plan to claim a charitable deduction of $250 or more for a car donation, you’ll need to submit written acknowledgment from the charity that includes a description of the car. Remember also that you cannot deduct donations to individuals, social clubs, political groups or foreign organizations.
Pay Attention To Mortgage Deduction
You may or may not remember that the tax reform lowered the amount of debt you can use to claim a mortgage interest deduction from $1.1 million to $750,000. If you have a mortgage between $750,000 and $1.1 million, don’t assume that you are automatically included. You could lose a valuable deduction if you modify your mortgage before finding out if grandfathering rules apply.
Still Time To Leverage Retirement Accounts
Believe it or not, some of the most valuable tax benefits are available through traditional retirement accounts like a 401(k) or an IRA. It’s not too late to increase your contributions. The 2018 contribution limits are $18,500 for a 401(k) and $5,500 for an IRA (not including catch-up contributions for those 50 years of age and older).
Now Is The Time To Act
If you are going to get the greatest tax advantage, it pays to review the items above before it’s time to file. In fact, some of the items require your attention now, before the end of the year. If you have any questions about the items explored above or any other tax related item, give us a call. And, by all means, if you are behind on your taxes let us help you get on the right side of the IRS sooner rather than later.