This is the first full year since under the new tax law passed in 2017. You may be surprised by your tax burden—either pleasantly or unpleasantly. Now is the time to take a look at your tax situation and make some moves before 2019 ends so you won’t be shocked at tax time.
Evaluate whether you have withheld enough from your salary. If you have withheld less than 90 percent of what you owe for the year, you may be hit with a big penalty and have to pay a fine on top of that. If you haven’t withheld at least 90 percent, submit an estimated tax payment to make up the difference by the end of the year.
Reconsider how much you are withholding from your paycheck and if necessary, increase withholding to make sure that you reach that 90 percent threshold next year. You can calculate how much to withhold by using the Tax Withholding Estimator on the IRS website at www.irs.gov. If you need to change your withholding, fill in a W-4 form and submit it to your employer.
Estimate if you will be taking the standard deduction or if you will itemize on your 2019 tax return. The standard deduction is now $24,000 for married couples filing jointly and $12,000 if you file as a single. If you are close to that level but aren’t quite there yet, you might generate some additional deductions by making a larger charitable contribution or prepaying state income taxes in 2019.
You can cut your tax bill by reducing your taxable income if you haven’t maxed out on your retirement plan contributions this year. You can put in up to $19,000 into a 401 (k) and if you are over age 50, you can invest up to $25,000 a year. If you are self-employed, you can contribute up to 25 percent of your compensation up to $56,000 each year up to age 50 and as much as $62,000 if you are over age 50.
If you have made pretax contributions to a Flexible Spending Account, known as an FSA, through payroll deductions, make sure you spend whatever is in the FSA by the end of the year. If you don’t use it for qualified medical expenses, you will lose it.
Minimizing your taxes legally should not be just a year end exercise. By making sure that your withholding is correct, making the maximum contributions to your retirement plans and spending whatever you put into your FSA, you will be living tax-smart all year round.