Make the most of your money: Year-end tax budgeting tips to help you save

Dec 26, 2019, 14:42 PM by Nuvison Credit Union 

Around this time of year, it’s important to start thinking about your taxes. While the end of 2019 is quickly approaching, there may still be time to take actions that could reduce what you owe the government in April. We know that all the different policies can be confusing, especially with the changes that came with the Tax Cuts and Jobs Act passed in 2017. That’s why we’ve put together a list of things to check on as this year draws to a close. These tips have the potential to save you money you’d otherwise owe.

Tax Time

Decide if you’ll take an itemized or standard deduction

When it comes time to file taxes, the biggest money saver is going to be deductions. The purpose of a deduction is decreasing your taxable income, thereby decreasing the taxes you owe. Most people will choose the standard deduction, which equates to $24,400 for married couples, $12,200 for single individuals, or $18,350 for heads of households.

A lot of times people choose the standard deduction because it’s easier, but depending on your other expenses, that might not be the best decision. An itemized deduction allows you to calculate and deduct specific qualifying expenses—things like home mortgage interest, state taxes, medical expenses, charitable contributions, and certain business expenses. If the sum of these expenses is greater than the standard deduction, going the itemized route would allow you to pay less in taxes.

Make a donation to your favorite charity

With the new tax laws, claiming deductions for charitable donations isn’t as easy. Unless you donate a significant amount, you’ll probably be better off taking the standard deduction. There is, however, a way to maximize your giving and receive a greater deduction.

Many tax experts are advising making two years’ worth of contributions at a time. This strategy, known as “bunching”, helps you claim an itemized deduction and maximize your overall tax deduction every other year. Making the contribution all at once doesn’t mean you give it at once. Donor-advised funds allow you to contribute a chunk of money and choose to disperse funds to charitable groups overtime.

Double-check and plan ahead

The first thing you want to check is that your withholding amount is correct. Sometimes, too much or too little tax money is withheld from your regular paycheck. It’s a good idea to make sure the right amount has been taken, so you aren’t blindsided by taxes still owed when April comes around. The IRS provides a tool for estimating your correct withholding amount, which you can find here.

You should also gather bills, documentation, and receipts you may need. This is especially important if you decide to itemize. Finally, figure out how you will pay what you owe in April. Don’t put yourself in a situation where you need to use a credit card or a loan to make the payment.

 

Max out your retirement contributions

Remember that these contributions are tax-deductible in the year you make them. The majority of contributions, depending on your retirement plan, will reduce your current taxable income. You don’t even have to itemize to claim this deduction, you can secure it while still taking the standard deduction.

If you can’t afford the maximum, don’t worry. Just put in the amount you can. Any amount is worth it and will help you work towards the important goal of saving for retirement.

Time it right

Postponing income that would push you into a higher tax bracket, such as an end of year employer bonus, could save you money. If this applies to you, it could be worth looking into deferring this payment to 2020. Likewise, moving up planned expenses to the current tax year could increase the deductions you qualify for. Pre-paying January’s mortgage bill, upcoming medical bills, or tuition fees might help you save more.

Get help if you need it

If your financial situation has been complicated this year, or you just aren’t sure how to maximize your benefits, it could be worthwhile to seek professional help. Tax advisors often charge more as the April 15th deadline approaches, so seeking them out before the next year starts is one way to save money.

If you’ll be filing for yourself, you should still know what resources are available to you. There are plenty of free options available. The IRS has a location service that helps people find local free help, and there are many online services that help you get organized. Taking these steps now will reduce your stress starting off next year and can help you avoid costly mistakes like late-payment penalties.

Start thinking about next year

Along with making last-minute checks on this year’s taxes, now is a good time to start planning for the next tax season. After all, your income and expenses starting January 1st will be included. Think about the broad financial goals you want to accomplish in 2020. Will there be any major changes? If so, start planning and learning how these may affect you when it comes time to file taxes again in 2021.

The information contained within this article is for informational purposes and should not be considered financial or tax advice. Everyone’s financial and tax situations are unique and you should consult a financial advisor and tax professioanl for assistance with your particular situation and goals.

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