Many Americans are likely breathing a sigh of relief if they completed their taxes for the year, but experts say it’s never too late to begin thinking about next year.
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According to the IRS, the average refund doled out to taxpayers was essentially on par with last year’s – at $2,388 as of April 5, compared with $2,864 the year prior. As of the end of March, however, the IRS had issued $6 billion less in total refunds when compared with last year.
With the first filing season under the Tax Cuts and Jobs Act in the books, taxpayers might be particularly concerned about filing next year – especially if they encountered surprises regarding refunds or tax bills.
Tim Speiss, partner-in-charge of the personal wealth advisors group at EisnerAmper, said his firm began forecasting planning opportunities for April 2020 back in Dec. 2018 – since the tax laws changed so substantially.
The first thing Speiss recommends doing is checking your withholdings and assessing whether there is anything that needs to be adjusted. The IRS and Treasury Department urged Americans throughout the year to check those withholding amounts, but many did not, which resulted in refund – and tax bill – shocks for certain taxpayers. Speiss said many of his clients had to pay additional tax this season because they failed to check their withholding.
Taxpayers should also make sure they are familiar with changes to the law, so they can minimize their obligations as much as possible. That includes taking advantage of the 20 percent deduction for pass-through entities, when applicable, since many deductions for individuals were eliminated under the Tax Cuts and Jobs Act, Speiss noted.
Another area individuals should plan around is the estate tax. Republicans raised the estate tax exemption under the Tax Cuts and Jobs Act to $11.18 million, meaning assets valued up to that amount can be transferred without triggering the 40 percent tax. Speiss said that can be a valuable planning tool for individuals and couples filing jointly – for which the threshold is $22.8 million.
And lastly, Speiss recommends contributing as much as you can to retirement accounts – and considering the use of flexible health savings plans.
A Health Savings Account (HSA), for example, allows an individual to contribute pretax dollars for the explicit purpose of spending those funds on future medical expenses.
You can contribute to an IRA and an HSA through the tax deadline to reduce taxable income.