It’s already mid-December, but there’s still time to save on 2019 taxes before the year ends, a local finance expert and government agencies said.
Small adjustments to investments and retirement accounts and even hanging onto Goodwill receipts can lead to significant savings over time, said Mark Pearson, founder of Nepsis Inc. in Savage.
There isn’t one path to the best personal savings, and it’s important to consult an accountant or other expert to seek advice on a case-by-case basis, he added.
Many of these tips cover itemized deductions, a variety of ways to drive down the amount of money you earned that then gets income taxes applied to it. Taxpayers can also choose a single standard deduction that’s the same for everyone.
1.) Meet homeowner deadlines.
A homestead classification qualifies your property for a market value exclusion, which could reduce the property’s taxable market value, according to the Minnesota Department of Revenue.
Applicants for homestead classification must move into the home by Dec. 1 and apply by Dec. 15 in order to qualify for the following tax year, according to Scott County Assessor Michael Thompson.
Pearson said paying January’s mortgage in December might also lead to tax savings for some.
New federal tax laws signed in 2018 limited mortgage interest deductions, but Pearson said deductions might still be available, and homeowners should consult an accountant.
2.) Think strategically about medical expenses.
You can consider having any needed medical procedures before the end of the year if you’re nearing or have exceeded spending 10% of your taxable income on medical expenses, Pearson said. Taxpayers can make a deduction from their taxable income for whatever they spend above that cap.
Most people are under the limit, he said, but those who aren’t could save big on pricey procedures such as root canals, hip replacement and cataract surgery.
3.) Take a closer look at your W-4 and 401(k).
Pearson said some might benefit from decreasing their tax withholdings on their W-4 before the year’s end to lessen the tax burden in April.
He suggested also taking a closer at 401(k) retirement accounts.
You can typically funnel up to $19,000 per year into a retirement account, or up to $25,000 if you’re 50 or older, Pearson said. Contributions to those accounts happen pre-taxes, essentially shielding those particular dollars from income tax.
He also said it’s important to make sure you’re earning your company’s full 401(k) match if there’s one available.
“We have found a lot of investors do not participate in their company’s 401(k),” he said. “It’s a huge benefit. It’s free money.”
4.) Save for college early.
Contributions to a 529 plan, an investment account for future higher education expenses, can be deducted from federal income taxes.
“Put money away now,” Pearson said. “Don’t delay, don’t put off the inevitable.”
The accounts in Minnesota are overseen by the Minnesota College Savings Plan. Most of the people who use them are wealthy, according to the Pioneer Press, but accounts can start with $25 and can receive contributions from students, parents and other family members.
5.) Knowing if you qualify
Do you earn less than $56,000 a year? You could be eligible to receive a $6,000 tax credit in 2019 if you qualify for the Earned Income Tax Credit.
The credit is geared toward low- and moderate-income workers, especially parents, the Internal Revenue Service says. The credit helps lift millions of families out of poverty each year, according to the Washington, D.C.-based Center on Budget and Policy Priorities.
6.) Consider tax-loss harvesting.
Tax-loss harvesting refers to selling off underperforming stocks to claim a loss on your investment and deduct a portion of the loss from your taxes.
“When you sell losers, they are either going to be offset by current capital gains or by future capital gains, and if you have capital gains in this year, you can sell the losses to off set those gains in the current year,” Pearson said. “So it literally puts money right back into your pocket.”
Investors can repurchase stocks after 30 days, he said.
7.) Save receipts from donations.
Donating to charities is a great way to lessen your tax burden, Pearson said, but short-term thinking often leads people to toss their Goodwill receipts.
While it may not seem like the deduction is worth the effort, it can lead to significant savings over time.
“Anytime you can take $100 here or $100 there, pretty soon, it ends up being real dollars back in your pocket,” Pearson said.
To maximize your savings, he suggests putting the money back into your 401(k) to allow the money to grow tax-deferred.
The year’s end can also a good time to consider donating appreciated stocks.
You’ll receive the full credit for the value of the gift on your taxes, Pearson said, even when your investment was less than the dollars donated.