There are things you can do now to save money on your 2019 tax bill. Why give more money to the IRS than you need to? You could put that money to work for you instead.
If you didn’t budget extra money to pay Uncle Sam, an unexpected tax bill could really put a dent in your 2020 budget. Now is the time to do everything you can to protect your 2020 financial goals.
Here are 5 Things You Can Do Now to Save Money on Your 2019 Tax Bill
1. Adjust Your W-4
This is one of the easiest things you can do right now. Some people think of the IRS as a tool for forced savings. If this is you, then you don’t need to do anything. But, if you received a big refund this year from your 2018 taxes, then you might want to go to your employer and adjust your W-4.
The opposite might be true too. Perhaps you owed a lot of money on your 2018 taxes. To make sure you don’t have the same experience next year, adjust your W-4 so that just the right amount of taxes is being withheld from your paycheck.
2. Max Out Your 401(k)
If you have a 401(k), take advantage of the tax savings and max out your contributions. For 2019, you can contribute as much as $19,000 per year. Lower your taxable income and you will save money on your 2019 tax bill.
At the very least, match your employer’s contribution. By the way, if you are self-employed, you can also open a 401(k).
3. And Your IRA
Under the umbrella of IRA is the traditional IRA and the Roth IRA.
If you have not opened an IRA yet, you should do so as soon as possible. There are many rules regarding contribution limits depending on whether you also have a 401(k), are married, and how much can be deducted from your tax bill.
You can fund your IRA until the April tax deadline, so if you don’t have the money right now, start saving up and be sure to take full advantage of the allowable deductions on your 2019 taxes.
4. Start Preparing Your Taxes Now
The earlier you get started organizing your paperwork for your tax filing the better.
Did you have medical expenses this year? If you were in the hospital or had significant out-of-pocket medical bills this year, you might be eligible for a tax deduction.
How about charitable contributions? Pull together all of your receipts for the donations you made this year to charitable institutions. As long as the recipients meet the IRS guidelines for being a bona fide charity, your contributions are tax-deductible. You are not restricted to cash donations. Items such as furniture, appliances, clothing, etc. also qualify.
If you have not made any charitable donations this year, make some now. Probably you have clothing and other unused items, in good condition, sitting around that relief agencies would love to have.
5. Earned Income Tax Credit
The Earned Income Tax Credit (EITC) could save you money on your 2019 tax bill. Once again, you need to read the IRS rules or consult with an accountant. The EITC is a mechanism to assist people with low to moderate-income. Unlike deductions, the EITC is a credit, meaning that it reduces your tax bill and could result in a refund.
If You Owe Money, File Your Tax Return Early
This won’t save you money on your 2019 tax bill, but you will have time to save the money you owe. File your tax return early. You have until the filing deadline to make the payment. On the other hand, if you’re due a refund, you’ll get that money earlier too.
If you are facing a tax bill and you won’t be able to save up between now and April 15 to pay it, there are some things you can do.
- Request a payment plan. You will have to pay interest and penalties until you pay the bill in full, but it’s much better than delaying, filing late or skipping out altogether. A payment plan might be the least painful alternative to paying your tax bill.
- Negotiate. Depending on your circumstances, you might be successful in negotiating with the IRS and lower the amount you owe. According to the IRS, if the tax owed is a large amount, and what you offer is probably all they will be able to collect anyway, they are likely to accept a compromise.
- Request a temporary delay. This option is solely in the hands of the IRS. Your chances will improve if you filed your return early and appear to be serious about paying what you owe. You can make a case that you just don’t have the funds to pay the bill at the time it is due.
One thing you don’t want to do is pay your tax bill with your credit card. While the IRS does accept credit card payments, the convenience fees and interest could ultimately make your tax bill bigger than it was originally. If you can pay the balance in full, and you’ll reap lots of reward points, then this might be a good option for you. Otherwise, you can throw off your credit utilization ratio and ruin your credit score.