Would you rather file your taxes or go without your phone for a week? If you dread tax season as much as 28% of Americans, you would probably voluntarily give up your cell phone just to avoid preparing your tax return. To add to the “fun” of tax season, the new Tax Cuts & Jobs Act created a slew of new tax reforms to decipher and a new Form 1040 to navigate. What was intended to simplify filing taxes for some has complicated it for others, with six new schedules to fill out, depending upon your situation.
No matter how you feel about tax season and the recent changes, taxes are inevitable. The sooner you get everything in order, the sooner you can shake off the looming stress and focus on things you love instead. Do not be one of the 29 million people who file their taxes at the last minute. Procrastinating until the last minute only leads to additional stress and misery. Start preparing now and give yourself a head start on tax season by following these four steps.
1. Organize Your Documents
Tax time usually means mountains of paperwork. The best way to avoid mistakes or missing out on possible deductions is to get all your documents in order before you start filling out your forms. Make sure you have records of the most common documents you will need, such as:
- W-2, 1099, or other records of income
- Records of charitable contributions over $250
- Information from prior years’ tax returns
- Rental income
- Mortgage interest and property taxes paid
- Dividend income
- Childcare costs
- Medical expenses
Make a master list of all the forms and documents you need, even using last year’s return to remind you of what your unique tax situation requires. As each document arrives, check it off and add it to / organize it in your current year’s “tax pile.” Your organizational efforts today will make filing smoother and faster in the end. To help you out, we have created a helpful checklist for you:
2. Benefit from Deductions and Credits
Benjamin Franklin may have declared that “nothing is certain except death and taxes,” but that does not mean you cannot do your best to reduce your tax bill. Fortunately, there are multiple credits and deductions that will not only benefit you this tax season, but they will also serve to give your financial future a boost as well.
Make Deductions Work for You
Even though we have turned the calendar to 2019, you can still maximize your retirement savings and reap the rewards on your 2018 taxes. If you do not have the opportunity to save through an employer-sponsored retirement plan, you can still invest in a Roth or Traditional IRA. Typically, you have up until you file your 2018 tax return to contribute to an IRA.
Contributing to a HSA (health savings account) is also an excellent option as you seek to reduce your total taxable income. The 2018 contribution limits for HSAs are $3,450 for individuals and $6,900 for families. You can also make a $1,000 catch-up contribution if you are over 55.
For the 2018 tax year, you have until you file your tax return to contribute to HSAs, Roth and Traditional IRAs, SEP IRAs, and Self-Employed 401(k)s to benefit from the associated tax benefits. Take the opportunity to build your nest egg and reduce your taxable income while you can!
Some additional deductions that may also apply to you are state sales tax on major purchases, student loan interest, charitable contributions, and medical and dental expenses. Due to the new, higher “standard deduction,” itemizing your taxes and applying these deductions may not work in your favor. Be sure to speak to a professional about tax strategies that will maximize your deductions under the new tax laws.
Research Applicable Credits
Filing taxes can be painful, but depending on your situation, you may be able to benefit from a variety of credits if you know where to look. When you qualify for tax credits, you should save on federal income tax in many cases. Many Americans qualify for the Earned Income Tax Credit, and if you or your children attend post-secondary education, you could benefit from the American Opportunity Credit or the Lifetime Learning Credit. There are also credits for saving for retirement and child and dependent care. A qualified CPA or enrolled agent (“EA”) will know which questions to ask and what to look for so you do not miss out on any opportunities to legally minimize your tax bill.
3. Reevaluate Your Filing Status
Have you experienced a life change this year, such as marriage, divorce, or the birth of a child? Any of those milestones likely will affect your filing status, which determines your tax rates, deductions, and eligibility for credits. Make sure you are filing under the correct status so you do not face unnecessary penalties or taxes.
4. Find A Professional You Can Trust
Did you know that over 1 million accountants are hired each year in America to help with taxes? There is a reason accountants are in such high demand. Working with a qualified and experienced accountant can make your tax season experience as seamless and stress-free as possible. These professionals have the knowledge to help you claim all the deductions you deserve, account for many variables unique to your situation, and answer any and all questions you may have. Their expertise can save you money and give you peace of mind.
Not only can working with a qualified tax preparer make your tax season smoother and less stressful, but a CPA or EA will also provide suggestions that will help you reduce your taxes for years to come. Regardless of your financial situation, hiring a qualified tax professional provides tremendous value for you. At Semita Asset Management, we not only take the lead to coordinate your financial plan with your other financial team members, but we can also help you find a qualified CPA or EA so you can have full confidence in the service you are receiving. Furthermore, we can coordinate directly with your tax professional regarding pertinent documentation to make your tax season even more seamless.
Tax day is looming, but do not let the stress of tax season wear you down. Between now and April 15th, take these steps to get ready for tax season so you are not scrambling at the last minute. If you have any questions about how to take control of your finances or would like information on how to find the right CPA or EA for you, particularly one who will coordinate with a professional financial advisor like us, click here to book an appointment online!
Michael Meagher is the Chief Executive Officer and Chief Investment Officer at Semita Asset Management LLC with more than 47 years of industry experience. He specializes in providing strategic, goal-based financial planning, risk management, retirement planning, and portfolio management services. Michael graduated from the University of Houston with an MBA in finance and holds both the Chartered Financial Analyst (CFA®) and Certified Kingdom Advisor (CKA®) designations. Learn more about Michael by connecting with him on LinkedIn.
CFP® () and CFP® () in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements
*The designation of Chartered Financial Analyst [“CFA”] is conferred by the Chartered Financial Analyst Institute, Charlottesville, Virginia www.cfainstitute.org. The CFA candidate must meet the following requirements to be eligible for the designation:
1) Possess of an undergraduate degree plus four (4) years professional experience involving:
- Evaluating or applying financial, economic, and/or statistical data as part of the investment decision-making process involving securities or similar investments, which includes, but is not limited to, publicly traded and privately placed stocks, bonds, and mortgages and their derivatives; commodity-based derivatives and mutual funds; and other investment assets, such as real estate and commodities, if these other investment assets are held as part of a diversified, securities-oriented investment portfolio; or
- Supervising, directly or indirectly, persons who practice such activities; or
- Teaching such activities, and
2) Successfully complete a study program that culminates with three (3) levels of examination each of which requires approximately 250 hours of study and preparation. The CFA Institute has a non-mandatory, or voluntary, program regarding continuing education requirements for the CFA charter holder.
**The designation of Certified Kingdom Advisor® [“CKA”] is conferred by Kingdom Advisors, Atlanta, GA www.kingdomadvisor.com The CKA candidate must be a disciple of Christ who has committed to be a person of character who, from a biblical worldview, serves clients with biblical financial advice in order to properly steward the resources entrusted to them. Kingdom Advisors has created the Certified Kingdom Advisor® designation to provide confidence to those looking for financial counsel from a biblical perspective. The Certified Kingdom Advisor® designation is given to advisors who:
- Complete the Kingdom Advisors’ Core Training
- Provide evidence of their technical competence
- Commit to personal stewardship
- Assert their belief in Jesus Christ
- Provide evidence of their personal integrity
- Commit to incorporating biblical wisdom into their financial advice