Have you wondered how much you’ve overpaid in taxes this year? If so, you likely want to do all you can to get as big a refund (or pay as little) as possible. As we inch closer to the end of 2018, now is the time to review what moves can and should be made during the last few weeks of the year. It’s not too late to make financial moves that can increase your refund! Take control and be proactive with this list of eight tax tips for your 2018 tax return.
Select a Tax Pro
Hunt & Gather
Time to start digging through those piles of paper! You’ve got documents to pull together (and more likely coming in the next few weeks) that are needed to file your annual tax return. Stay organized by separating paperwork into four simple categories: income items, deductions, life changes, and other. If you have self-employment activity or experienced other significant life challenging events, such as taking care of parents or losing a job, you probably can use a couple of more categories. You’ll appreciate having all that you need at your fingertips when it’s time to meet with your Tax Pro.
Reduce Taxable Income
Even if you contribute regularly to your traditional 401(k), or a similar workplace retirement plan, consider contributing up to the max before December 31 to reduce your taxable income for the year. For those with an IRA, keep in mind that you have until April 15, 2019 to make 2018 IRA contributions. If you are age 70 ½ or older, and you have a traditional IRA or conventional pension plan, be sure you have taken your annual required distribution to avoid penalty.
Declutter and reap a tax break! Donate your gently used, unwanted items (in good condition) to a qualified charitable organization. Remember, only contributions to IRS-approved charities are deductible. Also, be sure to retain receipts for any donated items you’ve purchased, like food and gifts.
Review your upcoming education expenses; consider maximizing your tax return education credits by prepaying college tuition bills that are due in early 2019. This can result in a bigger credit on this year’s Form 1040, as you can claim a 2018 credit for prepaying tuition for academic periods that begin in January through March of next year. Talk to a Tax Pro if you have any questions.
You can deduct the mortgage interest on your first and second home that you pay on loans, construction loans for your home, and certain home equity lines of credit. Did you buy that boat or RV last year? You may be able to deduct the interest on your tax return. And don’t forget your real estate taxes – these may also be deducted. You can no longer claim the mortgage insurance premiums unless Congress passes, and the President signs, an Extenders Bill.
Small Business or Self-employed?
There are dozens of considerations, tax deductions, and even tax credits available to small businesses and for the self-employed. Be sure to know all the rules related to your full-time business or smaller business on the side. Those extra deductions – including expenses for travel, computer, cell phone, internet, and even business gifts – are often overlooked but can make for a better bottom line on your tax return.
Part of tax reform includes increased deductions for assets and a new qualified business income (QBI) deduction from taxable income. The QBI is a 20% deduction of business income for small business owners. It is intended to reduce the taxes on small businesses and provide a decrease in taxes to mirror the reduced corporate tax rate.
New Credit for Other Dependents
The Miscellaneous sweet spot – that catchall category of possible deductions for things like income-generating hobbies, union dues, travel for work, and even business-related gifts – was a victim of tax reform. However, there is a new credit many taxpayers might benefit from. The Credit for Other Dependents (ODC) is a $500 nonrefundable credit available to taxpayers with dependents who do not qualify for child tax credits. Individuals must be a dependent – such as a child aged 17 or older, an elderly parent, friend, other relatives, and children or relatives with an ITIN. The full credit is available for taxpayers with an income of up to $200,000 ($400,000 if married filing jointly) and is $500 for each dependent. Because the credit is nonrefundable, any excess credit remaining after all taxes have been reduced to zero is lost.
Tax reform is here – talk to a Tax Pro to understand your specific situation, and to reduce the taxes you’ll owe and get a bigger refund. Do yourself a favor: Prep for end of the year while time is still on your side.