We’ve just begun the fourth quarter of 2018, the end of the first year under the new tax code. Here are six tax tips to give you a head start for filing 2018’s tax returns.
Review Your Itemizations. The changes to the tax code were sweeping, and a lot of people will find that they no longer have to or even want to itemize deductions. Now is a good time to pull out your 2017 return and take a look at what your itemized deductions were. Compare those against the new standard deduction ($24,000) to see if it will make sense to itemize for 2018. If it is still a good tax move to itemize, start gathering documents. A lot of documents, such as mortgage interest and property taxes paid, might not come until after January 1, but things like charitable deductions and medical expenses accrue over the course of the year. Start tallying those up now.
Consider Charitable Donations. If your itemized deductions are close the same as the standard deduction and you have plans to make a charitable contribution, determine whether it makes sense to make that donation in 2018 or wait for 2019. If you can, it might be wise to double up on your contributions in one year and not make any the next.
Use Your IRA. You can deduct up to $5,500 for contributions to an IRA (if you qualify) if you’re 49 or under. If you’re over 50, you can increase the contribution to $6,500. This is per spouse, so you and your spouse can make up to $13,000 in tax deductible retirement contributions.
Review Your Withholding. You should have done this back in January, but if you didn’t, or even if you did, it’s good to take a look at how much you are having withheld for taxes. If you haven’t had enough withheld through the first three quarters of 2018, increase the withholding. It might not completely eliminate having to write a check to the IRS next April, but it will surely lessen the amount.
Remember the Salt. In tax parlance, “salt” means “state and local taxes,” which are deductible from income. These are things like property tax (real estate, automobiles, etc.), and state and local income taxes. However, for 2018 and following years there is a cap at $10,000. Be aware of that in your calculations.
Don’t Do Anything Just for Tax Purposes. Whatever you do with your financial life, you shouldn’t do it just to get a tax break. For example, don’t borrow money to make a double charitable contribution just so you can get a larger deduction. What you do should have a legitimate financial purpose besides saving taxes.