Many of us don’t realize that managing taxes for the upcoming year actually begins the year before. If you are employed, that means making choices in your benefits enrollment that will help pay for certain things on pre-tax monies or helping you to save money for retirement faster.
If you didn’t take care of some of these issues during the end of last year, all is not lost for current year. There are still a few things you can do!
Maximize on your 401(k) or 403(b)
If you are employed by a company, you are probably familiar with the 401(k) term. If you work for a government or education entity, the 403(b) is the sister version in terms of tax planning. In both cases, it is money for your retirement, and the government gives you an incentive to save.
The IRS allows people under the age of 50 to contribute $18,500 tax exempt in 2018. If you are over 50, you can actually make an additional “catch up” contribution of $6,000. Now, if that sounds like it’s too much, that’s okay. Put what you can in – it’s for your future and every little bit helps!
If you employer matches your contribution to a certain percentage, you should be making a contribution for your company match. It’s free money! Why would you want to leave it on the table?
Example: If your employer matches at 20% up to the first $1000 you put into your 401(k) or 403(b) account, you should be putting $1000 into that account! You would have automatically made $200 on that money without any investing, and chances are, you are not going to miss that $50 per month from your paycheck!
Keep Track of Medical Expenses
If you forgot to sign up for a Flexible Spending Account (FSA) or a Health Care Spending Account (HCSA), and you have a lot of medical expenses, then save those receipts. They will come in handy during tax time when your tax preparer asks for them and if these expenses exceed 7.5% of your adjusted gross income in 2018 (but the 10% threshold returns in 2019), they become deductible.
Speaking of Which, Plan Ahead for 2019
Keep an eye out for the benefit sign-up. Most companies start this around the October/November timeframe, but for tax planning purposes you should check with your human resources department to get more information about benefits enrollment. Once that occurs, remember to sign up for the FSA, HCSA, or HSA plans. These benefit plans can save you up to $2,650 on your reportable income, and allow you to sock away some hard earned cash for medical expenses. Do remember that each type of plan does have special advantages and disadvantages, so it’s best to weigh each option and figure out which is the right plan for you.
Need Some Education to Boost Your Skills?
Attending a professional training or taking a college course that is tied into your current job responsibilities can actually help lower your taxes by providing tax credits.
Decrease Your Withholding if You Owe a Lot of Taxes
If you owe a large tax bill every year, you can decrease your withholding amount so that you owe less taxes for the 2019 tax year. Of course, every situation is a bit unique and it is normally up to you how you want to allocate your taxes. If you need more help, please feel free to contact MiklosCPA and we’ll discuss a solution that works for you.
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