Use your tax return for financial planning
Taxes and financial planning go hand in hand.
An understanding of how taxes impact your earnings and savings are a key part of any financial plan, and a tax return can serve as a great starting point to develop a financial plan. Within a return, Americans can see details of their cash flows, important investment information and insights about their progress saving for retirement. Given that the 2018 filing season is the first year to reflect the majority of changes resulting from the Tax Cuts and Jobs Act, it’s a perfect time to review your financial plan while all your documents are in one place.
However, by not updating their financial plans, taxpayers are potentially leaving money on the table every year that could be used toward their children’s education, their family’s health care savings or toward retirement savings. What’s more, having a financial plan and sticking to it will help individuals feel more confident they are working toward their goals. It will also go a long way toward ensuring they don’t owe Uncle Sam a big check come next year’s filing season.
While tax law has a direct correlation on how much Americans owe the IRS in any given year, life events—such as having a child, getting married or divorced or buying or selling a home—also play a major role in determining an individual’s tax situation. In addition, changing jobs, moving or even being impacted by natural disasters can all have a big impact, so it is important to understand and adjust accordingly.
Implement these tax savings tips for 2019.
With tax-filing season having just concluded, OSCPA members suggest Oklahomans review their returns and see if any the following opportunities make sense for them:
--If your job has a 401(k) program or similar and you're not participating in it, then you're missing out on one of the best opportunities to reduce your tax burden! Those contributions are free of current taxes. Your goal should be to at least contribute enough to get the full employer match, if one is offered. Getting the matching amount basically means a “free” 100 percent return on your contribution. For the 2019 tax-year, the contribution limit for employees who participate in workplace plans is $19,000 – up $500 from 2018. Participants over age 50 are eligible for additional catch-up contributions up to $6,000.
--Make 2019 contributions to accounts, such as IRAs, 529s, and workplace retirement plans, as early in the year as possible. By making these contributions earlier rather than later, taxpayers will benefit from additional tax-free compounding growth, which can be substantial over time.
--Tax time is a good time to review your employee benefits and determine what changes to make in the next open enrollment period, which is usually in the fall. With the Bureau of Labor Statistics finding than more than 30 percent of compensation is provided to workers in the form of benefits, you may be surprised at all the options your company offers—some of which can help reduce taxes. Some examples include health savings accounts and commuter benefits, both of which employees can contribute to pre-tax, reducing their taxable income.
Need more help? Talk to your CPA.
Don’t just speak to your CPA when it’s tax time! Many CPAs meet with clients on a regular basis throughout the year to ensure financial plans are staying on track. And if you’re considering a major life event – like getting married, having children or buying a home – consult your CPA to understand the tax consequences. If you don’t have a CPA, you can get a free referral and free 30-minute consultation in Oklahoma at www.FindYourCPA.com.