As I meet with clients throughout the year, I stress the importance of tax efficient planning strategies. I explain that tax efficiency is simply an attempt to minimize tax liability when given many different financial decisions. The tax code offers many ways to reduce your tax liabilities if you know how to use it. Your income can be converted into assets with smart tax planning. The real key to building wealth lies in creating assets.
Here are three suggestions for the individual filer that could help reduce your taxable income, and therefore your tax bill.
1. Maximize your deductions.
The Tax Cuts and Jobs Act brought about many changes to the filing of the 2018 tax returns. One set of changes has severely limited the number of deductions that will be available to most Americans. Further, the increased standard deduction reduces the incentive for many filers to itemize. However, there are many popular tax deductions still available, some with significant changes. Become familiar with these changes and ask your CPA or tax consultant to help you find the full range of tax advantages available to you.
2. Maximize contributions to your retirement accounts.
Perhaps the most effective way to reduce your taxable income is to contribute as much as possible to tax-deferred retirement accounts. Did you take full advantage of the contribution limits for 2018? If not, make sure to do so for 2019.
- If you have a 401(k) or similar retirement plan at work, you could defer as much as $18,500 into your 2018 account during 2018, and if you're 50 or older, this limit increased to $24,500. In 2019 the amount everyone can contribute goes up to $19,000.
- If you save in a traditional IRA, you can contribute as much as $5,500 for the 2018 tax year ($6,500 if you are 50 or older). In 2019 the amount everyone can contribute goes up to $6,000.
- Self-employed? If so you may have additional options such as a SIMPLE IRA, SEP-IRA, or Solo 401(k) and the limits on these accounts can be quite generous. You don't need to be exclusively self-employed to take advantage -- even if you do some consulting or freelance work on the side, you could take advantage of these self-employment retirement plans.
3. Work with your tax professional.
When it comes to financial planning, your tax professional is in a unique position to give you advice about asset building strategies. A thorough analysis of your filing status and deductions is an effective way to reduce the amount of taxes you pay. Your CPA has the knowledge of your personal finances and the expertise to combine smart, personalized planning with annual tax preparation and filing. You should work with your tax advisor to update your tax planning as part of your long-term financial plan.
Let us help you plan ahead for growth!
Charles P Myrick CPA offers tax preparation for individuals using a process that combines smart, personalized planning with annual tax preparation and filing. Our job is to help you know about all the available tax opportunities that meet your individual needs and circumstances. We work closely with tax lawyers, and investment advisors to ensure that all the details are legally sound, technically accurate, and working to your maximum benefit. Contact us to learn more: (202) 789-8898