As a tax consultant, many of my clients discover that this month is so packed with holiday parties, family get-togethers, and shopping that the year ends before they’ve had a chance to strategize for the 2020 tax filing season. But it’s not too late. I always encourage families and business owners throughout the New York City region, including Nassau and Suffolk counties, to plan ahead to ease the tax burden from 2019. Here are four simple tips to consider before the New Year’s apple drops:
Check Your Withholdings
First, I recommend double-checking your tax withholdings from your paycheck. If you are self-employed, like many of my clients, you’ll need to review your estimated taxes for 2019. The last thing you want is to be surprised because you did not estimate your withholdings properly throughout the year. This can be challenging if you changed jobs or had multiple jobs during the year. Working with a professional can make sure you’re prepared for both the 2020 tax season and next year’s withholdings, too.
Know Your Forms
Last year, we filed under the 2017 Tax Cuts and Jobs Act for the first time. Not only did this make significant changes to many tax bills, but it also led to plenty of confusion regarding the format of tax forms. This upcoming year, common forms–such as the Form 1040–are changing again. It’s vital that you fill all the appropriate schedules, which the IRS only recently finalized. Again, working with a professional will help you have confidence in the latest formats for filing.
Budget Your Retirement Savings
If you aren’t contributing to a ROTH IRA or Traditional IRA, don’t worry: You have until April 15, 2020 to open new accounts and fund up to the $6,000 yearly limit ($7,000 if you’re age 50 or older). Of course, the more you can budget for retirement will be helpful not just for financial planning in your later years, but during the upcoming tax season. If you’re self-employed, consider opening a SEP-IRA or a Solo 401(k) plan. You’ll need to open a Solo 401(k) before the end of the year, but both account options permit funding through October 15, 2020, if you file an extension. What’s more, you can contribute up to $56,000 into these accounts–even more if you’re over the age of 50.
Give Big in Big Years
If 2019 has been especially kind to you, you should consider contributing a significant charitable donation before the end of the year. With a standard deduction, quite often my clients are finding that their donations are not large enough to offer a tax break. However, if you are able to bunch several years of contributions into one big gift, you would benefit from itemizing your deductions. One option is to open a donor-advised fund, a process that would allow you to gift to nonprofit agencies at a later date.
When it comes to financial planning, it’s never too early to think ahead. But for the 2020 tax season and 2019’s taxes, it’ll soon be too late. A tax consultant can help save you a substantial amount come tax day, making your end-of-year that much merrier.