Managing Your 2019 Taxes
While there are no major tax law changes for 2019, the ripple effect of the 2018 changes may still be felt for a few years to come. Now that we've all been through one year of the new law, it's a good idea to review what changed and make sure that filing your 2019 taxes doesn't lead to an unexpectedly large balance due or refund.
Double check that your withholding is correct
One of the biggest challenges for most wage earners in 2018 was the fact that their payroll withholdings were less than in years past, leading to decreased refunds and in many cases, balances due for people who were not used to ever owing taxes. If that was your case, the reason for the change is that you probably took home more in your paycheck, but if you want to have a different outcome for 2019, you may need to update your withholdings.
The best way to check that is to use the IRS Withholding calculator. You'll need your most recent pay stub as well as last year's tax return.
Adjust for changes to itemized deductions
With the dramatic increase to the standard deduction ($12,200 for single and $24,400 for married taxpayers) many people who previously itemized deductions no longer exceed those limits, so are no longer seeing a tax benefit for things like mortgage interest or charitable contributions. This is especially true for married taxpayers who own homes in states with higher income and property tax rates – the new tax law only allows you to deduct a maximum of $10,000 in combined state, local and property taxes, whether you're married or single, which means that mortgage interest and charitable contributions must make up the rest of the deductions to see the tax benefit. If you previously had large deductions due to high income and property taxes, you'll likely see a higher taxable income. The good news is that most tax rates went down, so there may not be a large difference in overall tax, although it could feel like you're paying more.
Documenting charitable contributions
If you do itemize, consider donating money or property to a qualified charity to increase that deduction. Just be sure that you are properly documenting each gift – anything valued at more than $250 requires written acknowledgment from the charity and the documentation requirements increase along with the value of the gift.
Other ways to lower your taxable income
To reduce your taxable income during the year, consider maximizing pretax contributions to an employer-sponsored retirement plan such as a 401(k) or 403(b). You won't be taxed on the contributions you make now, and you may be in a lower tax bracket when you do eventually withdraw the funds and report the income.
If you qualify, you might also consider making either a tax-deductible contribution to a traditional IRA or an after-tax contribution to a Roth IRA. In the first instance, a current income tax deduction effectively defers income--and its taxation--to future years; in the second, while there's no current tax deduction allowed, qualifying distributions you take later will be tax free. You'll generally have until the due date of your federal income tax return to make these contributions.
Finally, if you are enrolled in an HSA-eligible healthcare plan, you may also want to deposit more into that account than your current year spending as money you contribute will lower this year's income, and can pay for future year's expenses tax-free, even if you're no longer enrolled in the same plan.