Federal tax laws are continually changing, and it’s becoming harder to optimize your tax return. While recent tax changes have eliminated some of the breaks and deductions available to taxpayers, there are still ways you can legally reduce your tax obligation. In this article, we’ll discuss five tips for lowering your 2019 tax bill and how S.H. Block Tax Services can help.
1. Update Your Filing Status
If you’re married, filing jointly typically lowers your overall tax liability and qualifies you for various credits and deductions. However, there are also times when filing separately can result in a lower tax bill.
For example, if you or your spouse had significant out-of-pocket medical expenses, filing separately may be a good idea. Under the 2019 IRS rules, you can only deduct these expenses if they exceed 10% of your adjusted gross income. When you file separately, the percentage is calculated on only one income and not your total, joint income.
2. Optimize Your Pre-Tax Withholdings and Deferred Income
Many retirement accounts and employer-sponsored benefit plans let you contribute or pay premiums with pre-tax dollars, reducing your taxable income. Examples include:
- 401K accounts
- IRA accounts
- Health saving accounts
- Health or dependent flexible saving accounts
- Commuter benefits
- Premium-only insurance plans
3. Calculate Dependent Care Costs
Whether you have a 7-year-old or an 87-year-old dependent, there are often tax breaks and credits available to decrease your taxes. Any money that goes towards child or dependent care may be tax-deductible. This includes nursing staff who assist you in taking care of an elderly parent while you’re at work or the cost of sending your child to daycare every day. Any expenses that result from your having to hire someone to help you care for a dependent while you are at work may qualify.
4. Don’t Overlook Important Credits and Deductions
While it’s harder to exceed the standard deduction today, many people still can use tax credits and deductions to their benefit. Notably, tax credits are available whether you use the standard deduction or itemize your return.
- Charitable Donations: Though charitable donation tax breaks have changed in recent years, taxpayers can still save money by itemizing and proving their donations.
- Earned Income Tax Credit: Many people believe that the EITC only applies to low-income taxpayers, but this is untrue. Middle-class taxpayers may also be eligible for this refundable tax credit, especially if they lost their job or took a pay cut.
- Student Loan Interest: If you’re paying off a student loan, whether your own or a dependent’s, you may be eligible for deductions on the interest paid on the loan.
- Lifetime Learning Credit: Taking any continuing education classes to improve your job skills? The lifetime learning credit allows you to deduct 20% of your continuing education expenses, saving you up to $2,000.
5. File and Pay on Time
One of the best ways to decrease the total amount you end up paying on your taxes is by filing and making your payments on time. Late filing can add up to 25% of your unpaid taxes to your total amount owed. That’s typically around 5% each part of a month until you file. Likewise, the failure-to-pay fee works the same way, but is only 0.5% each month. While this may not seem like much, these penalties can add up quickly.
However, there are also ways to minimize or avoid these penalties; if you have questions, contact our office.
S.H. Block Tax Services: Simple Solutions for Complicated Questions
At S.H. Block Tax Services, our tax experts help clients determine their legal tax options and negotiate with the IRS to resolve tax issues. If you have any questions about your eligibility for any of the above suggestions, we’re here to help.
The content provided here is for informational purposes only and should not be construed as legal advice on any subject.