Here are five things you should consider as you file.
1. Start early
If you usually procrastinate getting your documents in order until mid-April, save
yourself the trouble this year and start the process early.
“Start your return as early as possible,” says Arielle Minicozzi, co-founder and
executive financial planner at Sphynx Financial Planning. “Even if you don’t file
right away, you’ll get the ball rolling and give yourself more time to finish.”
And if you do owe the IRS, filing earlier can give you more time to get your
payments together. “Many people don’t realize you don’t have to pay immediately
when you file; you have until the filing deadline,” Minicozzi says.
2. Weigh your preparation options
Choosing between hiring someone to prepare your taxes or doing it on your own
largely depends on the complexity of your situation.
If your taxes are simple, you can easily file online using free software, says David
Zaegel, president and co-founder of CWOs for Hire, a financial planning
company. This is a good option, for example, if you have only a W-2, you’re a
renter and you don’t have any self-employment income.
The IRS offers Free File Software for people whose income is under $66,000 and
Free File Fillable Forms for those above $66,000. Other free online software
offerings include FreeTaxUSA, H&R Block and TurboTax.
“Once you really get more complexity of starting to own a house and you have
some more investments, maybe you have a side business, that’s really where
you should go to a CPA to get some help and make sure nothing is missed,”
Even if you don’t expect your filing to be complex, a certified tax professional can
help you determine your best strategy.
3. Look into changes that affect you
One of the most significant changes to the tax law is the increased standard
deduction: It’s now $12,000 for individuals and $24,000 for those married filing
jointly (up from $6,350 and $12,700, respectively, in 2017) .
Plus, many deductions from previous years have disappeared, like personal
exemptions and moving expenses for non-military taxpayers. State and local tax
deductions are now capped at $10,000.
Many taxpayers should benefit most from taking the new standard deduction. But
if you’re weighing both options, do your research or work with a CPA to make
sure you understand how you’ll be affected.
Robert J. Falcon, founder and president of Falcon Wealth Managers, points to
one change in particular that may stand out for many people.
“In addition to our itemized deductions, we used to also get an exemption of
$4,050 for each parent and child,” he says. That exemption, which lowered your
taxable income, is now gone, but many families can benefit more from this year’s
expansion of the child tax credit.
For those who qualify, the expanded child tax credit now allows up to a $2,000
reduction in tax for each dependent child, Falcon says. The credit is also
refundable now up to $1,400.
4. Evaluate changes with your employer
Fewer people are receiving refunds so far this year, according to the latest data
from the IRS. Make sure your refund matches your expectations by adjusting
withholdings to align with your needs.
It’s generally too late to change your tax liability for 2018, but you can start
planning for next year. Adjust your 2019 withholding information by updating
Form W-4 with your employer. You can use the IRS Withholding Calculator to
ensure you’re making the correct number of allowances.
“After filing your taxes, adjust your paycheck withholding accordingly,” says Greg
McBride, CFA, chief financial analyst at Bankrate. “If you’re getting a big refund,
have less withheld so you get your money throughout the year instead of giving
the government an interest-free loan. If you have to pay, then have more
withheld from each paycheck so you’re not in a similar spot next year.”
Once you see how the new laws affect your tax liability, don’t hesitate to re-
evaluate your strategy so you can continue to make the most of your money.
5. Look at your overall financial health
“Tax time is a great time to see the benefits of contributing to retirement savings
accounts and health savings accounts, and it’s a great opportunity to change
some numbers around or try to optimize your use of those accounts,” says
Nathan Rigney, lead tax research analyst at the Tax Institute at H&R Block.
You still have until April 15 to make an IRA contribution for 2018 and possibly get
a deduction on what you owe this year, McBride says. Otherwise, you can use
your refund to contribute to your IRA or put it toward your other financial goals.
Max out your retirement accounts if you’re able, increase your emergency
savings in a high-yield savings account and pay off any high-interest debts.
“It’s just a great time to think about your personal finances and if there’s a way
that you can accomplish some of your financial goals while also reducing your
tax liability,” Rigney says.