Thinking ahead: How to prepare next year’s tax filing now
If you weren’t happy with your tax bill this year, or you’re worried about next year’s, this is the time to take action.
CHECK YOUR WITHHOLDINGS
If you do only one thing, review the withholdings on your paycheck.
The tax overhaul changed how much employers withhold from paychecks. If you withhold too much, you are due a refund. If you withhold too little, you owe. While the government urged people to review their withholdings to make sure they were up to date, few did. As a result, some people got more money in their checks during the year but were surprised at tax time.
The IRS urges all taxpayers to do a “Paycheck Checkup” now so that if a withholding adjustment is needed, there is time for it to happen more evenly this year. You can change your withholdings at any time. Waiting means fewer pay periods to withhold the necessary federal tax. The IRS has a withholding calculator on its site, which will help people determine their correct withholding amount.
SAVE FOR RETIREMENT
If you set more aside for your future retirement, it can actually help you on your taxes now. That’s because money put in a 401(K) account is pretax, thereby lowering your income level. There are also tax breaks for contributing to IRAs and other retirement accounts.
So check to make sure you are contributing as much as possible to your retirement plan, said Dave Du Val, chief consumer advocacy officer at TaxAudit.
DON’T OVERLOOK DEDUCTIONS
Yes, the tax overhaul did away with or limited a number of popular deductions but there are still some out there for the taking.
You can claim mortgage interest on up to two homes. Consider bunching your charitable donations together into one year instead of spreading them out over multiple years to get the biggest tax bang for your buck. If you have medical expenses that exceed 7.5 percent of adjusted gross income, make sure to claim those. And you can still deduct up to $10,000 in personal property tax, real estate tax, and state and local income or sales tax.
The standard deduction is much higher, but experts say it’s still worth running through the exercise to see if your itemized deductions are larger.