Learn what you can do to lessen your tax bite and achieve more in your future…
As December rolls in and 2018 comes to an end it is important that you review your tax situation at this time and determine if there are some year end and year beginning moves that you can make to put yourself in a better position for short and long term success.
In this discussion TheWealthIncreaser.com will look at a number of moves that you can make to improve your tax position so that you can reach your short, intermediate and long-term goals so that you can enjoy life more and lessen your tax bite.
It is important that you are aware of new tax law changes that occurred in 2017 under the jobs and tax cut act and more particularly the ones that might affect you and your family.
You want to know your 2018 tax projections for your taxes that you will do in 2019 for the 2018 tax year.
However if you have not done so by now—you can at least prepare properly and put yourself in position to make other tax moves and possibly adjust your w-4 withholding in 2019 and not have any tax surprises on your 2019 and future year taxes.
Amend Your 2017 Return if You are Eligible Based on Tax Law Extensions Passed Earlier this Year
It is important that you are aware of tax law changes that occurred in February of 2018 that extended more than 30 tax breaks, including those for businesses and even a few for individuals and families.
The MIP (mortgage insurance premiums), deduction for tuition and fees of up to $4,000 and energy efficient home improvements went back on the books for 2017 returns and 2018 returns are still up in the air–as far as extensions are concerned.
To claim the deductions for 2017 if you are eligible you would have to file an amended return (form 1040X).
If after amending your return your AGI is reduced—that reduction could affect your state return and you could possibly amend that return as well and get additional income.
Project Your 2018 or Future Year(s) Tax Bill
You may be due a larger refund or you may owe more in taxes. However, you won’t know if you don’t get out in front and project your 2018 tax bill as best you (or your accountant) can.
You can then determine if you need to adjust your w-4 in 2018 and better direct your refund or balance due—depending on your goals.
With new withholding tables now on the books you can now go to irs.gov and utilize the w–4 calculator to better plan your taxes after you have projected your income.
You can then go to your employer and adjust your withholding if you see a benefit.
Determine Now the Likelihood that You will Itemize or Take the Standard Deduction
With the standard deduction being nearly doubled for some taxpayers, it is expected that the number of those who itemize will decline.
Will you be in that number that utilize the standard deduction or will you itemize–or do you even care?
If you itemize you have the ability to deduct more items—but will the cash total be higher than the amount of the adjusted standard deduction based on your filing status that were put into effect with the job and tax act of 2017?
Be aware of the tax ramifications and don’t forget to consider the implications of your state taxes depending on the choice that you will make (itemize or standard deduction) as a lower itemized total at the federal level could still be of benefit–if it will help you more at the state level (your overall tax refund would be more or your overall tax payment would be less).
Find Ways to Earn Additional Income
Whether you get a second job, invest in the market both inside and outside of your retirement accounts, form a company of your own (Sole Proprietorship, C-corp., S-corp., Partnership, LLC or any other legal form) that you create based on “your” desire, ambition and passion—it is important that you use your imagination to find new ways of generating income.
Be aware of the tax ramifications and again don’t forget to consider the implications of your state taxes depending on the choice that you will make (investment choice(s) and ownership structure) and also look at non-tax issues in detail and do a thorough analysis as that analysis may sway your decision in the opposite direction of where you planned to go.
Questions You Need to Ask Yourself if You Are Considering Opening a Business of Your Own Include the Following–Among Others…
Can I really make money and pay all of my monthly expenses—including my taxes?
Can I sell my product or service for more than it costs to bring to market?
Can I serve my intended audience and/or customers or will I be overwhelmed and unable to meet the needs of my customers or potential customers in a timely manner?
Will I create a business plan and put together a team that can handle my legal, tax, banking, regulatory, technological and accounting concerns?
Do I believe in the product or service that I will be promoting and selling?
These are some of the questions that you must ask and answer upfront as the tax code generally favors those who take risks.
Even so, you want to take a calculated risk where you know the probability of success is in your favor when endeavoring in a new venture.
Create an HSA Account
A Health Savings Account provides you the opportunity to save for your future health care costs in a tax efficient manner (you can deduct your annual contributions on your tax return to reduce your taxes and your earnings grow tax free–and withdrawals are tax free if used for medical related purposes).
The good news is that there are “no income limits” and you can “invest in a variety of financial products” such as mutual funds, stocks, bonds etcetera to help guard against rising health care costs that you may incur in your future.
There are also “deductible qualifiers” if your employer offers health insurance. However, you can also open and set up an HSA account at many financial institutions yourself if your employer does not offer a plan or you are self employed or you don’t otherwise qualify for medical coverage.
It is also important that you know what to consider if you decide to set up an HSA account and a recent bankrate.com article spells out what you need to consider in clear terms.
If your employer offers an HSA and you elect to participate you would not be taxed on the contributed amount or pay FICA on the contributed amount. Even though you received the tax benefit through your employer you would still have to file form 8889 on your personal tax return.
If you qualify for a HSA, you can deduct the contributions on your tax return even if you don’t itemize by using form 8889. Keep in mind you will face serious penalties (20% in the 2018 tax year) if you withdraw funds for non-medical related expenses.
Once you reach age 70 ½ there are no mandatory withdrawals–therefore you could potentially continue to let your account grow in a tax-free manner if you had no need for the funds!
Be sure to seriously consider the option now–and not look back in regret years down the road when the costs have skyrocketed and your financial options to cover your health care expenses are limited or non-existent. If you remain healthy late into your 80’s or 90’s you will have tremendous growth in the account that you can use outside of medical related expenses after you turn age 65 (taxes would be due on withdrawals but there would be no penalty).
If used for medical related expenses after age 65 there would be no taxes due at all!
HSA’s have annual contribution limits (currently $6,900 for 2018 and $7,000 for 2019 for families–with a $1,000 catch-up provision for those age 55 and over). Withdrawals are “penalty free” for all purposes after you reach age 65! However, if you use the funds for other non-medical purposes taxes would be due at your ordinary income tax rate in effect at the time of your withdrawal.
If your employer offers an HSA your contributions can allow you to avoid payment of FICA taxes, thus providing you an additional 7.65% additional savings on top of the amount that you contribute annually–all while helping you reduce your taxable income.
If you earn $100,000 a year and contribute $7,000 you would pay taxes (federal, state and FICA) on $93,000–the $7,000 contribution would be excluded from federal, state and FICA (social security) taxes! In addition, your income minus your contribution (up to the limit for your filing status) can be used for calculating whether you are eligible for a subsidy under the Affordable Care Act.
Open an IRA Account
Did you know that an IRA (Individual Retirement Account) provides you another tax-efficient way to manage your retirement income?
It is important that you realize that there are basically two types of IRA’s:
1) Traditional
2) ROTH
A Traditional IRA allows you the ability to contribute up to an annual maximum and then you can deduct those contributions on your future year tax return—even contributions up to the filing deadline if the amount does not exceed the annual maximum (currently $5,500 or $6,500 if age 50 or older).
The result of deducting your contribution would normally be owing less tax or getting a larger refund. Once you retired you would pay taxes at your current tax rate on the withdrawals.
Mandatory withdrawals are also required once you reach age 70 1/2!
A ROTH IRA allows you to make non-deductible contributions that have already been taxed—therefore your withdrawals would be tax free at retirement.
Roth IRAs do not require withdrawals until after the death of the owner.
With the Traditional IRA and the ROTH IRA there are income limits and other qualifier’s, however both are worth real consideration if you currently have the discretionary income at this time—or you want to learn more so that you can plan your future in a more tax efficient way.
Conclusion
Your tax moves at this time or at other times during the year can prove to be beneficial for you and your family.
All tax situations are unique, however there are moves that you can make to put yourself and your family in a better position tax-wise. In this discussion TheWealthIncreaser.com has only scratched the surface in the coverage of tax moves that you can possibly make.
Even so, those that apply to you or that you may be considering can get you moving forward in a real way!
By taking several hours out of your busy life and organizing your tax and other financial data–and reviewing and seeing clearly where you now are at you can better position yourself and your family for future success.
Now is the time to outwork and outthink what is working against you and now is the time to turn the tide so that you can make your dreams come true.
By taking the time to think about your taxes and do something about them in a sincere way–today–you are on a path toward real success–if you give it your best!
And always remember the tax code normally favor those who take risks!
The tax code may not be as favorable for some due to their current family size, marital status, whether they were negatively affected by the tax law changes (i.e. claimed unreimbursed employee expenses—including mileage on their automobile etc.), their income level, the number, types and amount of deductions and credits available, whether they have a mortgage or rent and other factors.
All the best toward your tax moves and future success…
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