This year was the first tax season both accountants and taxpayers saw the effects of the Tax Cuts and Jobs Act in action. Some taxpayers were happy with the changes they saw to their tax returns and some were not. If you fell into the second group, there are a few things you can do this year to plan better for your 2019 taxes. We’ve rounded up five tips from five tax professionals to help get you started.
Do your tax planning early
Steve Rhoden, CPA
“Do your tax planning now rather than later in the year. Many tax saving strategies can be implemented throughout the course of the year. However, very few strategies can be applied after the tax year has closed.”
Many taxpayers don’t think about taxes until right before tax season, but if you want to minimize your tax liability and improve your financial well-being, you should really be thinking about taxes sooner in the year when you still have time to make significant tax planning decisions.
Start a side hustle
Dave Haupt, EA
“Consider starting a side hustle of some kind. Think over the expenses you have through the year and the ability to expense the ones that relate to your business. Speak with a tax professional about possible business ideas.”
Being self-employed comes along with quite a few tax benefits and deductions. For example, you may be able to deduct expenses such as meals, business insurance, vehicle use, travel, etc.
“On top of that, you can pay your kids without withholding Social Security or Medicare Taxes as they work for the business.”
Set up your business as an S-Corp
Gary Gessel, CPA
“Consider setting up an S-Corp to save self-employment tax. My general rule of thumb is over $10k of profits in the business (at a minimum) for it to make economic sense.”
If you already own a business, consider setting it up as an S-Corp. You’ll still owe payroll taxes on your salary, but your profits won’t be taxed as self-employment income, so you won’t owe the 15.3% self-employment tax. Plus, you can write off your salary.
Consider withdrawing from your IRA penalty free
Lance Hackett, CPA
“With the real estate market being so hot, many are looking to purchase a new home. First-time home buyers should keep in mind they can withdraw up to $10,000 from their IRA penalty free to buy a home.”
As an advisory note, Lance adds that the amount taken out of retirement will still act as additional income and could raise your tax bill quite significantly.
Check your withholding
Michael Law, CPA
“Do a withholding checkup to determine if you need any changes now. There is still plenty of time to make up any shortfall of withholding.”
The IRS provides a Withholding Calculator for a quick “paycheck checkup.”
There are more actions you can take than just these five to set yourself up in a good place financially before 2020. For more tax advice, consider reaching out to your tax professional and asking them about tax planning.