Consider conducting a final tax planning review now to see if you can still take actions to minimize your taxes this year. Here are some ideas to get you started.
Review your income. Begin by determining how your income this year will compare to last year. Since tax rates are the same, this is a good initial indicator of your potential tax obligation. However, if your income is rising, more of your income could be subject to a higher tax rate. This higher income could also trigger phaseouts that will prevent you from taking advantage of certain deductions or tax credits formerly available to you.
Examine life changes. Review any key events over the past year that may have potential tax implications. Here are some common examples:
- Purchasing or selling a home
- Refinancing or adding a new mortgage
- Getting married or divorced
- Incurring large medical expenses
- Changing jobs
- Welcoming a baby
Identify what tax changes may impact you. There were lots of changes this year thanks to a new tax bill passed this summer. Here are some of the more important changes to be aware of:
- Up to $25,000 of tip income can be excluded from income.
- Up to $12,500 of overtime income ($25,000 for married couples) can be excluded from income.
- Increase in the standard deduction.
- New $6,000 senior citizen deduction.
- Child tax credit is increased to $2,200.
- State and local tax deduction is increased to $40,000.
Manage your retirement. One of the best ways to reduce your taxable income is to use tax beneficial retirement programs. So now is a good time to review your retirement account funding options. If you are not taking full advantage of the accounts available to you, there is still time to make adjustments.
Look into credits. There are a variety of tax credits available to most taxpayers. Spend some time reviewing the most common ones to ensure your tax plan takes advantage of them. Here are some worth reviewing:
- Child Tax Credit
- Earned Income Tax Credit
- Premium Tax Credit
- Adoption Credit
- Elderly and Disabled Credit
- Educational Credits (Lifetime Learning Credit and American Opportunity Tax Credit)
Avoid surprises. Your goal right now is to try and avoid any unwanted surprises when you file your tax return. It’s also better to identify the need for a review now versus at the end of the year when time is running out. And remember, you are not required to be a tax expert. Use the tips here to determine if a review of your situation is warranted and please call if you have any questions about your tax circumstances.
Nancy J. Ekrem, CPA
Managing Shareholder
DME CPA Group PC
Certified Public Accountants & Business Consultants
nekrem@dmecpa.com
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