Now is the perfect time to be thinking about taxes.
Because there is still plenty of time for you to make some adjustments before the end of the year either during the evenings or over the weekend so you can lower your taxes and 2020 can be your best year ever with your finances!
8 Ways to Maximize Your Tax Benefits
Believe it or not, there’s still time to get ahead your 2019 taxes so when you file them in 2020 things will go smoother and you’ll put yourself in a position to hopefully get a tax refund.
By making sure you’re taking advantage of the smart tax moves you can make before the end of the year.
Not sure where to start?
Let me share with you eight things you can do now to make sure that when it comes to taxes, you’re coming out ahead.
1. Contribute More for Retirement
One of the best ways you can help yourself now with taxes and later when you retire is making sure you’re taking advantage of your accounts like your 401(k) and IRA.
If you have an IRA, now is a wonderful time to stash away more into it. With a traditional IRA, your contributions may be fully or partially deductible. The 2019 contribution limit for an IRA is $6,000 ($7,000 if you’re 50 or older)
Contributing more to your 401(k) can be an even better deal if your employer offers a match program. If you’re not already, make sure you’re putting in enough to get that free money.
With a 401(k), your contribution limit for 2019 is $19,000 ($25,000 if you are 50 and older) and $19,500 for 2020 ($26,000 if you are 50 and older).
2. Open and Fund Your Kid’s College
Speaking of investing more, if you have little ones, opening up a college plan like a 529 can give you some tax benefits now and allow you to save for their educational expenses later. While contributions to the plan are not tax-deductible, investments held within the plan accumulate on a tax-free basis. The funds can continue to build up, taking advantage of tax-free compounding, until they are withdrawn. Although contributions to the plan are not tax-deductible, various states offer deductions or credits for contributions.
Under tax reform, you can also open 529 plans to pay for your child’s private elementary and high school.
You can open up a 529 plan almost as easy as opening up a savings account. In fact, your local bank or credit union should be able to work with you in getting that setup.
Take time to decide which plan is right for you and start making contributions.
3. Review Your Investment Portfolio
We’re leaning heavily on the investments here, but there’s are plenty of ways you can get ahead come tax time.
You may be able to take advantage of loss harvesting, by selling losing stocks to offset any taxable gains. You are able to deduct up to $3,000 in losses from investments against your ordinary income.
4. Delay That Bonus
If your employer is giving you a bonus, first off – congrats and second, see if you can defer it until after the new year if getting the additional income is going to increase your taxes. It may not be possible, but it doesn’t hurt to ask.
If you’re a small business owner, you have some more flexibility with this. You can send out invoices for contract work at the end of the month.
If you’re using a cash method for your business you don’t have to report income until you collect it.
5. Pay Estimated Taxes Early
Since we just talked about deferring income, let’s look at the other side of the coin – paying taxes ahead. This can be advantageous for self-employed business owners.
You may want to go ahead and pay your estimated taxes for the 4th quarter before the year ends. This requires that you keep on top of your finances throughout the year, but if you’re using accounting software like Quickbooks Self-Employed, it’s much easier to grab that amount.
6. Donate to Charity
One fantastic way you can gain a tax deduction is by helping and giving to others. Donating items or money to an IRS recognized, qualified charity can be a win-win for all involved.
If you volunteer and help out the charitable organization, some related out of pocket expenses like the miles you’ve driven in your car for the charity could be tax-deductible as well.
Besides your gently used items and cash, there are some other ways you can donate and receive some tax benefits.
Did you know that you can donate appreciated stock or property? You can and it can not only help the charitable organization, but it’s also tax-deductible.
No matter how you give, don’t forget to keep your receipts!
Whether you go digital or keep a paper trail, it’s good to have these in a handy spot. For me, I like to have a folder just for our donation receipts.
It’s a quick and easy setup that we can use when we file our taxes.
You can also use TurboTax ItsDeductible to accurately value and track your donations throughout the year. Your donations can then easily transfer to your TurboTax return at tax-time.
7. Review Your Flexible Spending Account
Depending on what your employer offers, you may have a flexible spending account (FSA). With an FSA, you are having pre-tax money deducted out of your paycheck so you can use it for qualifying expenses like medical co-pays and other expenses not covered by your insurance.
This is beneficial to you because those contributions lower your taxable income while helping you stash away money for medical expenses not covered by your insurance.
If you find that you still have money left in your FSA, then now would be a good time to use it for those doctor’s appointments you’ve been putting off since some accounts are use it or lose it or a portion of the money rolls over and has to be used in the first few months of the next year.
8. Business Owner? Have Weekly Financial Checkups
For my business, I set aside time on Friday mornings to go over the week’s expenses, income received, and plan out for the month ahead.
If you freelance on the side or have a business, it’s easy to push off what you need to do and let that accumulate.
However, if you do it in small chunks like weekly, it’s pretty straightforward and quick. I use Quickbooks Self-Employed and I love how I can add notes to the transactions while things are still fresh in my mind.
Come tax time, I can confidently transfer that information into TurboTax Self-Employed tax return, saving me a significant amount of time.
Thoughts on Easily Maximizing Your Taxes
I shared some of my favorite tips; I’d love to hear from you. How do you prepare and keep tabs on your finances throughout the year?
Do you have any tips you’d like to share on making taxes easier?