Don’t let the holidays sidetrack your tax planning. Moves you make between now and the end of the year can have a significant effect on how much tax you have to pay next April.
This is particularly true if you’re saving for retirement, itemize deductions, or hold investments outside a retirement account. But time is running short. It will be too late to cut your tax bill using most of the tips we’ve assembled below after we ring in the new year. So check out our list right away, and get cracking!
Check your withholding
The 2017 tax overhaul lowered tax rates across the board, but it also scrapped some popular tax breaks. As a result, some taxpayers who were accustomed to receiving a refund ended up owing the IRS when they filed their 2018 tax return.
If you were part of that band of disgruntled taxpayers, you may be able to take steps between now and year-end to avoid another April surprise. Use Kiplinger’s Tax Withholding Calculator or the IRS’s Tax Withholding Estimator as soon as you can to determine whether you should file a new Form W-4 with your employer and increase the amount of taxes withheld from your paycheck before the end of the year. You’ll need your most recent pay stub and a copy of your 2018 tax return to help estimate your 2019 income. Because there are only a few pay periods between now and December 31, reducing the number of allowances you claim may not make enough of a difference in your withholding to affect your tax bill. Instead, go to line 6 on your Form W-4 and fill in the dollar amount you’d like to have withheld.
In general, you don’t have to worry about a penalty if you owe less than $1,000 after subtracting withholdings and credits, or if you paid at least 90 percent of the amount of tax due for the current year or 100 percent of taxes due the previous year, whichever is smaller.
Read the full story at Kiplinger.
Photo: Kelly Sikkema, Unsplash