You’ve Filed Your 2018 Tax Return, Now What?
By now, most of us have filed our 2018 returns. The 2018 tax season threw us a lot of curveballs and caused a lot of confusion. What have we learned from this most recent tax season?
Smaller Refund Checks
Most refund checks were less than expected this year, despite the fact that an estimated 80% of filers owed less tax than in years prior. The Tax Cuts and Jobs Act (TCJA) created winners and losers for this tax season. For instance, in high-tax states like New York and California, taxpayers saw their deductions get cut way back. On the flipside, higher income taxpayers in lower tax states were winners this tax season. In addition, adjustments to salary withholdings tables put out by the IRS created a larger range of refunds than in previous years. You can tell that people actually got a tax cut, but when their refunds are lower, it’s hard to spin it as positive.
Another win for taxpayers this season involves Roth IRA accounts. You can now take tax-free Roth withdrawals after reaching age 59½ if you’ve had a Roth account open for more than five years. If you die, your beneficiaries can dip into the Roth account without owing any federal income tax. Rates are down from the past 30 years, and in today’s political environment, they could go back up in the future. There are two ways to begin contributing to a Roth account. First would be to start making annual contributions of $6,000 ($7,000 if you are above 50 years old). The other way would be to convert a traditional IRA into a Roth account. This would be considered a taxable distribution and will trigger a larger federal income tax bill for the current year, however, the good may outweigh the bad as the tax rate could be the lowest it’ll ever be.
Planning for the 2019 Tax Season
The 2018 tax season threw many people for a loop. Want to avoid the stress and disappointment of a small refund next year? Consider doing some tax planning now before it’s too late and make sure you are on track for your goals this year! Take advantage of your employer’s 401(k) Plan. Make sure you don’t leave any matching funds behind! Plus, HSA and FSA accounts allow you to pay for medical expenses tax-free, so look into your employer’s offerings to take advantage during your company’s open enrollment period.
Lastly, consider consulting with your tax professional before making any significant transactions. It is possible that there will be tax implications that you have not considered. Most major life events have significant tax consequences. Whether it’s selling your home, transferring funds from one retirement account to another, debt consolidation, getting married, getting divorced, adopting a child, or having a baby, there may be a right way and a wrong way to handle it from a tax perspective. The Internal Revenue Code is full of quirky rules; the tax savings obtained from professional advice will dwarf the fees in comparison.
Contact CPA Nerds
Whether you’re planning for a big life event or just want to gain peace of mind regarding your tax withholdings, we’re available to talk to you about any financial questions you may have. Call us today at (586) 468-0200.