If you’re still licking your tax wounds, you may not be eager to dive into planning for 2020. As painful as it may be, now is the perfect time to learn from your mistakes and pivot. Here are nine smart ways to start preparing for next year’s return.
1. Compare your 2018 vs. 2019 tax return.
It’s easy to blame the new tax law if you were unhappy with this year’s return, but smaller returns or owing money may not reveal as much as you think. A better way to gauge your results is by comparing how much you actually paid in taxes.
Look for your total tax liability on each year’s 1040. After reviewing the numbers, it will be easier to decide on your next steps.
2. Work with a tax professional.
Most people don’t seek advice until the tax deadline is looming — which could be a mistake. If your tax situation feels complicated, be proactive. Working with an experienced professional year-round may be well worth the investment.
3. Make a plan to stay organized.
There is nothing worse than scrambling around at the end of tax season. If you struggle to stay on top of paperwork, now is the perfect time to create a more efficient system. Staying organized all year may cut back on stress in April. This is especially important if you’re a contract employee or self-employed.
4. Save for quarterly taxes every month.
If you are a contract employee or self-employed, you may already know the pain of quarterly taxes all too well. Set aside 30 percent of every penny you earn for taxes and make your quarterly payments on-time. The next three deadlines are June 17th, September 16th, and January 15th. Do yourself a favor and set a couple of reminders for each one.
5. Adjust your withholding.
This year, you may have received a smaller refund. Or worse, the nasty surprise of owing money. If you didn’t adjust withholding and lost deductions, the final numbers may have come as a shock. Luckily, there is plenty of time to make changes for 2020. Start by plugging your numbers into the IRS’ Withholding Calculator. If you are still having trouble, read this notice or speak with your company’s HR department.
6. Be strategic about retirement savings.
If you want to reduce your taxable income, adding to your tax-deferred retirement accounts is one way to do it. Even with a tight budget, increasing your 401(k) or 403(b) contributions by 1-2 percent may be painless.
7. Maximize your employee benefits.
While sitting down with your HR department, ask about other tax opportunities. It’s possible your company offers a lot more than a 401(k). You may have access to a health savings account (HSA) or flexible spending account (FSA). Ask for details. You could also be leaving education reimbursements on the table.
8. Bunch your charitable gifts.
Unless there are major changes to the Tax Cut and Job Act (TCJA), it’s unlikely you will itemize deductions in 2020. The standard deduction is now twice the size — making it the better option for your return. To get around this, some folks are lumping a few years of charitable giving into a single year or “bunching” their gifts.
9. Be proactive.
If you are disappointed by your 2019 return, now is the time to make changes. The best way to avoid trouble is by planning for taxes all year long. By making immediate adjustments, you will be far less likely to repeat last year’s costly mistakes. It will be a good feeling to keep more of your family’s hard-earned dollars in 2020.
Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.