2019 Tax Perks and Pitfalls, Part 2
In a recent article, we did an overview of some of the biggest potential perks and pitfalls to be aware of in the upcoming year. Granted, “big” is relative after the roller coaster tax season we just wrapped on Oct. 15. Trump’s Tax Cuts and Jobs Act created major changes in most tax returns—some positive, others not so much.
Before you start your Black Friday shopping, spruce up your home for visitors, or splurge on that post-holiday resort trip you’ve been wanting, call us first. While we can’t do much to change your 2019 tax liability after Dec. 31, there’s still time to make adjustments to take some of the surprises out of next year’s tax returns.
Pitfall: Failing to adjust your tax withholding.
The combination of changes to withholding tables and itemized deductions may have meant that some of your paychecks were larger, but you had a larger balance due with your tax return than in previous years. Let’s review and update your tax withholding so this doesn’t happen again next year. There’s not much time left, but with a few paychecks remaining, you can still adjust your withholding after we estimate your 2019 tax liability.
Pitfall: Not adjusting your estimated tax payments.
If you’re a 1099 independent contractor, you’re hopefully already making estimated quarterly payments. (If not, call me and say it’s a tax emergency!) Be aware that if you don’t pay enough tax in through quarterly estimates, you can end up with late fees, interest, and a big tax bill in the spring. Fortunately, there’s still time to catch up in 2019 and limit penalties. Like above, let’s run the numbers to see if you’ve paid the right amount.
Perk: You can sock away more for retirement.
Some tax-advantaged retirement accounts saw a slight increase in potential contributions. The base contribution for 401(k) accounts for 2019 is $19,000, up $500 from last year. The contribution limit for IRAs is also up to $6,000 in 2019. If you’re over the age of 50, you may be able to make additional “catch-up” contributions, if your plan permits. Expect additional minor increases in 2020. These aren’t huge changes, but every bit helps bolster your retirement savings and lower your tax burden.
Perk: You can save more for your medical expenses.
If you have a high-deductible health insurance plan that qualifies you for a healthcare savings account, or HSA, you can now contribute a little more each year—up to $3,500 for individuals and up to $7,000 for families. (Max contributions will go up an additional $50 for individuals and $100 for families in tax year 2020.) Unlike a flex spending account, your HSA carries over each year. This makes it a great way to apply pre-tax dollars to your healthcare spending. If you know you’ll have major health expenses coming up, it may be worth fully funding your account.
Let’s get started on your 2019 taxes
After the Tax Cuts and Jobs Act caused some confusion and challenges with tax returns filed in 2019, we’re all hoping 2020 will be a less hectic year for tax returns. While we can’t get started on your 2019 returns until early 2020, there’s still time in 2019 to run a tax projection and make adjustments to remove or reduce the chance of a surprise come April 15, 2020.
Neal Bach, CPA