15 Mar 5 Last-Minute Moves to Make before Filing Your Taxes
When it comes to your 2018 taxes, most things can’t be changed. Most numbers pertaining to your tax return are already set in stone, and the majority of things you can do to reduce your tax liability expired when the ball dropped on New Year’s Eve. However, there are still a handful of moves you can make right now that may help to reduce your tax liability for 2018. Here are five things you should consider doing to ease your tax burden.
Contribute to Retirement Accounts
Unlike most other tax deductions, deductions for retirement account contributions can be taken for any funds you invest before April 15th. So, if you’re looking to reduce your tax liability and haven’t maxed out your retirement plan contributions for 2018, you may still have time. IRAs are one of the quickest ways to take advantage of this, so if you don’t have one yet, look into setting one up and maxing out your contribution if possible, before April 15th.
Take Advantage of Opportunity Zones
When the Tax Cuts and Jobs Act (TCJA) was passed at the end of 2017, it established more than 8,700 low-income “opportunity zones” around the US. Individuals and businesses that invest in these areas can defer or otherwise avoid taxes on capital gains from other investments. Of course, there are certain stipulations to qualify for these kinds of deferments.
Here’s an example: You have a $100,000 stock portfolio that has earned $50,000 in gains. Depending on your income level, you could owe as much as $10,000 in taxes on these gains. But, if you roll those gains into a qualified opportunity fund, you can defer those taxes until 2026, or until you sell your new investment. If you hold the new investment for at least five years, you can actually reduce the taxable gain as well; the longer you hold it, the greater the reduction in what is considered taxable gains.
There is no limit on how much you can invest in these qualified opportunity zones, so long as you invest within six months of selling your other investment or assets. The majority of qualifying opportunity funds are in local businesses and real estate projects within the opportunity zone. Because the rules surrounding this tax benefit are so complex, you should work with a business tax expert in Provo if you hope to claim this deduction.
Change Your Business’s Accounting Method
If you’re self-employed or own a business, changing your method of accounting can be a last-minute way to save on taxes. Typically, switching from an accrual basis (reporting income when it’s earned) to a cash basis (reporting income when you’re paid) will reduce your taxable income for the previous year. You can change your accounting method at any time, and depending on the timing of when you earned your income and when you received it, the tax savings can be quite significant.
Use the Qualified Business Deduction
This is less of a tax move and more of a reminder about this important tax benefit for business owners, courtesy of the TCJA. If you are a sole proprietor or business owner, and your income is under $315,000, you can deduct a full 20% of your income before you even begin itemizing your other deductions. For income over $315,000, the deduction steadily decreases until it phases out on income over $415,000.
Plan for Next Year
While this won’t impact your current tax return, it is an important tax-related move you should make as soon as possible. Many taxpayers will find themselves with unexpectedly high tax bills this year, due to changes implemented by the TCJA. If you want to avoid this next year, be sure to take a look at your withholdings on your paychecks, and make any necessary adjustments. If you start planning for your 2019 tax return now, you’ll find yourself in a better situation next tax season.
If you have any questions about your tax return, and how you can make last-minute deductions that impact your tax liability, contact The Accounting Guys to speak with a business tax expert in Provo.