For most people, the days of worrying about their taxes ended when they submitted their 2018 tax return to the IRS. But while many Americans may be eager to put away their financial records, now is the perfect time to plan for the future. Instead of filing it and forgetting it, the Oregon Society of CPAs encourages Americans to use the information in their tax return to develop a plan that will put them on a path to reach their financial goals.
Taxes and financial planning go hand in hand
An understanding of how taxes impact your earnings and savings are a key part of any financial plan. And a tax return can serve as a great starting point to develop a financial plan. Within a return, Americans can see the details of their cash flows, important investment information and insights about their progress saving for retirement. And given that the 2018 filing season is the first year to reflect the majority of changes resulted from the Tax Cuts and Jobs Act, it’s a perfect time for Americans to revisit their financial plan while all their documents are in one place.
By not updating their financial plans, Americans are potentially leaving money on the table every year that could be used towards their children’s education, their family’s healthcare savings, or towards retirement. What’s more, having a financial plan and sticking to it will help individuals feel more confident they are working towards their goals. It will also go a long way towards ensuring that they don’t owe Uncle Sam a big check come next year’s filing season.
While tax law has a direct correlation on how much Americans owe the IRS in any given year, life events such as having a child, getting married or divorced or buying or selling a home also play a major role in determining an individual’s tax situation. In addition, changing jobs, moving or even being impacted by natural disasters can all have a big impact – so it is important to understand and adjust accordingly.
Tax savings tips for 2019
With tax-filing season having just concluded, CPA financial planners suggest Americans review their returns and see if any the following opportunities make sense for them:
If your job has a 401(k) program or similar and you're not participating in it, then you're missing out on one of the best opportunities to reduce your tax burden- because those contributions are free of current taxes. Your goal should be to at least contribute enough to get the full employer match, if one is offered. Getting the matching amount basically means a “free” 100 percent return on your contribution. For the 2019 tax-year, the contribution limit for employees who participate in workplace plans is $19,000 – up $500 from 2018. Participants over age 50 are eligible for additional ‘catch-up’ contributions up to $6,000.
American should make their 2019 contributions to accounts, such as IRAs, 529s, and workplace retirement plans, as early in the year as possible. By making these contributions earlier rather than later, taxpayers will benefit from additional tax-free compounding growth, which can be substantial over time.
Tax time is a good time to review your employee benefits and determine what changes to make in the next open enrollment period, which is usually in the fall. And with the Bureau of Labor Statistics finding than more than 30 percent of compensation is provided to workers in the form of benefits, you may be surprised at all the options your company offers – some of which can help reduce taxes. Some examples include health savings accounts and commuter benefits, both of which employees can contribute to pre-tax, reducing their taxable income.
Need more help – talk to your CPAs
Don’t just speak to your CPA when it’s tax time! Many CPAs meet with clients on a regular basis throughout the year to ensure their financial plan is staying on track. And if you’re considering a major life event – like getting married, having children or buying a home – consult your CPA to understand the tax consequences.
Money Management is a regular column on personal finance prepared and distributed by certified public accountants, produced in cooperation with the Oregon Society of CPAs (www.orcpa.org) and the American Institute of CPAs (www.aicpa.org). Copyright 2019 The American Institute of Certified Public Accountants.