This year was the beginning of the new Tax Cuts and Jobs Act. This means that taxpayers will likely need to make some adjustments to help reduce the potential for underpaying or overpaying their taxes. While there are just a few pay periods left before the end of the year, there are some tips that will work in the 11th hour for reducing or addressing your tax obligation.
Check your withholding
Your employer may have adjusted workers’ withholding to reflect changes in the tax law. Check to see if your big itemized deductions are still applicable – if they are not, you will not be withholding enough. To figure out the correct amount, use the IRS’s withholding calculator. If it is low, fill out a new W-4 with your employer (you can even put a dollar amount in to bump up the size of the withholding).
Sell losing stocks
The tax code enables taxpayers to sell off any investments valued below the purchase price. They can then apply the loss to counter any taxable capital gains. These rates vary depending on how long the investment was held. Short-term losses should be applied to short-term gains, and long-term losses should apply to long-term gains. Any additional loss up to $3,000 can apply to ordinary income. If there is more loss, this can be rolled over to next year.
Determine if there are capital gains distributions coming
If a taxpayer owns a mutual fund in a taxable account, they must pay taxes on the gains before filing a tax return. If there is a distribution, see if there are other mutual funds, stocks or bonds that have gone down in value that can be sold to help offset the gain.
Maximize retirement funds savings
Increasing pretax payments to retirement accounts will lower take-home pay and reduce tax obligations. Check with human resources or the administrator of your 401(k) to find out how much can be placed before the end of the year.
There are other options
There are other legal options for reducing tax obligation for 2018 as well. A financial expert or an attorney with a background in tax law can be helpful in coming up with an effective plan to meet individual needs before it is too late.
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