Ah, tax season is officially upon us. I like to call it “silly season,” but I’m not sure how CPAs feel about that term. However, we’ll have to wait until May to find out. Regardless, I wanted to share some quick tips to reducing your tax bill. You know my philosophy – “It’s not what you make. It’s what you keep.” I don’t mind paying my fair share in taxes. However, I have no objective to tip Uncle Sam by paying out more in taxes than I legally have to. With that, let’s look at some tips for both the past and future. As always, talk to your CPA about whether these concepts make sense for you.
- Even though the calendar has changed to a new year, it is not too late to contribute to an IRA for 2019. If you have the ability to still contribute, you need to do before you file your taxes or tax deadline, whichever comes first.
- I didn’t realize this one until my older son started working. Most minors do not pay local income taxes. For example, my sons lifeguard during the summer. The cities they work in will refund the local income taxes withheld by their employers, however, you need to file the paperwork, which is rather simple.
- Check with your benefits people to make sure you are maxing everything out through your work plans. This means 401ks, HSAs, FSAs, 403bs, 457s, or whatever else may apply. And, if you are 50 or turning 50 this year, you can do the catch-up, which allows you to save more through qualified accounts (aka – reduce your current tax bill).
- As ugly as the end of the month was in the market, it is a good time to do some tax loss harvesting with the market recently giving up some gains. Do NOT wait until the end of the year to do this. Harvest those losses now and keep them on the books to offset any gains in the future. Don’t worry. I’ll write about this in more detail in an upcoming article.
- Talk to your advisor about asset location. This is a real thing that may be as important as asset allocation as it helps to keep taxes down in your investment accounts. Again, I will be writing more about this later.
- Although there was a rush a couple of years ago, it may still make sense to set up a Donor Advised Fund (DAF). If you do regular charitable giving every year and have some highly appreciated assets, it may be worth considering doing a DAF as it helps reduce your taxes and also continue to fulfill your charitable goals.
- Set up an appointment now to meet with your CPA after tax season (also known as the silly season) to do some more in-depth tax planning going forward. Getting it on the calendar sooner rather than later is always a good thing.
These are just some quick and easy ideas to help make smart tax-related decisions when it comes to your financial future. There are lots more ways to make sure you aren’t tipping Uncle Sam, unless you want to pay more out in taxes. Not that there’s anything wrong with that😉