Three ways to streamline your tax prep in 2019
- Financial Planning
- Tax Planning
Before you file away your income tax paperwork for 2017, why not take a quick look at what you might do differently this year to save time and money on your returns next year? We asked Alyssa Do, JD, LL.M, Managing Director and Wealth Strategist at Boston Private, for her ideas to help you get a head start. Here are her top three tips.
1. Check now on the amount the IRS is withholding.
If you received a large refund this year, that could mean the IRS has been withholding too much of your paycheck. (“And that’s money that could be working for you instead,” says Do.) If you ended up paying more than you expected, your withholding may have fallen short. Either way, now is a good time to check to make sure you’re withholding the right amount for the balance of 2018.
It’s even more important this year in light of the new Tax Cuts and Jobs Act (TCJA) that lowers taxes for most individual filers as of January 2018. As a result, explains Do, “Most people are going to be a little bit ‘over withheld’ this year. And, although some employers have adjusted the withholding rates for their employees, many have not.”
Fortunately, she says, you can do your own quick withholding calculation on the IRS.gov site. “If you want more money in your pocket every paycheck, it’s worthwhile to check. Even if you only have eight months left, you can still submit a revised Form W-4 to your employer or HR department and reduce it down to a lower dollar amount.”
2. Continue to save receipts and records for possible deductions.
You may already have folders or online files to store the documents, receipts, and forms you’ll want next April. But the paperwork you’ll need to keep will change based on the new rules for tax deductions under the new Tax Act. (See our infographic summarizing those key changes.)
- You’ll still want to document your charitable contributions, for example, because you may not know until later this year whether the much larger personal deduction of $24,000 (for couples) will be greater than your total of itemized deductions, which includes your charitable donations.
In addition, the amount you can deduct for gifts to charity is now greater—up to 60% of your Adjusted Gross Income (AGI). “So, if you make substantial charitable gifts, that deduction is now worth more,” says Do. And any excess deduction can be carried over to apply to taxes for the next five years.
- You’ll also want to keep track of interest paid on your mortgage and your home equity line of credit (HELOC) if you use it for home repairs and maintenance. Even though the mortgage interest deduction now applies only to loaned amounts of $750,000 or less ($100,000 for HELOCs), these rules apply only to properties purchased after December 15, 2017.
“That means most homeowners are ‘grandfathered’ under the new law and will still be able to apply the older, higher threshold of $1,000,000 in indebtedness to their deduction,” Do explains.
- If you choose to do so, you will still be able to itemize deductions for your state, local, and property taxes (up to a maximum of $10,000) and any medical expenses greater than 7.5% of AGI, so keep records for these expenses. Note that in 2019, medical expenses must be greater than 10% of AGI to claim deductions. “You may want to schedule that elective surgery now, rather than wait,” says Do.
- You can continue to deduct alimony you’re required to pay this year for a divorce settlement. But this can change in 2019 if you and your ex-spouse agree to modify your agreement to apply the new TCJA rules (no deduction and no income reporting) after Dec. 31, 2018.
3. Don’t worry about documenting the expenses you can’t deduct.
There’s really no need to keep tax-related records for the other expenses that you can no longer deduct. (Although you may want to keep them for other reasons.) Those expenses include:
- Tax preparation fees
- Investment management fees
- Unreimbursed business expenses
- Moving expenses
- Personal casualty losses, except in declared disaster areas
By focusing on the information you may need next April and gathering receipts and documents throughout 2018, you’ll be well positioned to save time and money on next year’s tax return—whether you “do it yourself” or depend on a tax professional.
- Financial Planning
- Tax Planning