With the 2019 tax season still months away, many people forget about taxes till the tax filing season bells begin to chime. However, you only reap the benefits of a tax strategy if it is carried out for the whole year. Keeping taxes in mind when investing, spending, and withholding is a great way to save more in taxes while growing your money.
The overhauling of the tax code, elimination of many deductions, and changes in tax credits is causing significant confusion among taxpayers. To avoid the tax potholes that may cause you to file incorrectly, check out these 5 essential tax tips shared by The Motley Fool.
“1. Watch your withholding
Tax reform caused the amount of money withheld from paychecks to go down in 2018 for many taxpayers. That made their paychecks bigger, but it could result in smaller refund checks for many, and some might even end up owing tax when they file their returns.
The IRS has come up with a tool to assess whether your withholding is correct. If it’s not, you can make adjustments to your payroll withholding by filing a new Form W-4 with your employer. Or looking at estimated tax payments can prevent you from owing penalties and interest.
2. Predict what your refund will be – and when you’ll get it
The biggest motivator for many to file their returns is to get their refund. But tax reform will likely affect those refund amounts in many ways. Higher standard deductions, lower tax rates, and larger child tax credits could boost refunds, while the elimination of personal exemptions, limitations on certain itemized deductions, and the phase-out of various other tax benefits could reduce them.
One thing families should remember is that if you’re eligible for the earned income credit or the additional child tax credit, then your refund will be delayed at least until mid-February. Given the potential for delays to the beginning of tax season, it’s likely that even those who aren’t seeking those credits could have to wait at least that long to get money back from the IRS.
3. Look at these special rules for those without Social Security numbers
If you’re required to file taxes but don’t have a Social Security number and aren’t eligible to get one, then the IRS issues what it calls individual taxpayer identification numbers. These ITINs fill the same role as a Social Security number for tax purposes for certain nonresident aliens, as well as a set of resident aliens and dependents or spouses.
The critical thing about ITINs is that they expire. Therefore, the IRS urges those whose ITINs could expire before they file their returns to submit a renewal application now in order to avoid any future hassles.
4. Familiarize yourself with new tax forms
Millions of taxpayers will have to deal with a new tax form for the very first time during the 2019 tax season. Everyone will use a shortened version of Form 1040, which has been shortened to more closely resemble short-form returns like the 1040-EZ and 1040A. Yet the 1040 will also require new schedules that taxpayers will have to attach in certain circumstances. With the new forms available on the IRS website, it’s smart to get a head start by looking at them before starting your tax prep for the year.
5. Know where to get help
The IRS knows that tax reform will create a lot of confusion, but there’s help available. From online assistance to taxpayer assistance centers and the Volunteer Income Tax Assistance program, Americans can get the guidance they need to deal successfully with their tax returns in the coming months.”
Time is ripe to create an effective financial and tax strategy that can save you precious tax dollars while investing better. Get on top of the tax changes that affect you now and reap the results in the form of a lower tax bill at tax time.”
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