If you own a business, earn significant investment income, are recently married or divorced, or have a Flexible Savings Account (FSA), you may want to work on your income tax strategy now rather than later in the year.
Do you need to pay estimated income tax?
If you are newly retired or newly self-employed, you will want to be familiar with Form 1040-ES and the quarterly deadlines. Each year, estimated tax payments to the Internal Revenue Service are due on or before the following dates: January 15, April 15, June 15, and September 15. (These deadlines are adjusted to the next available workday if a due date falls on a weekend or holiday.)1
Making estimated income tax payments is not only required, it’s smart. Underpayment or late payment of taxes results in penalties. Confer with your tax professional to see if you should adjust your estimated tax payments for this or that quarter.1
Has your household size grown?
That calls for a look at your pre-tax withholding. As a best practice, it’s wise to take home more money now rather than wait to receive it in the form of a tax refund later. Adjusting the withholding on your W-4 may bring you more take-home pay. Ideally, you would adjust it so that you end up owing no tax and receiving no refund. Learn about withholdings and use the IRS’s calculator here.2
Think about how you could use your FSA dollars before the end of the year.
The Department of the Treasury has modified the rules for Flexible Spending Accounts (FSAs). The IRS now permits an employer to let an employee carry up to $500 in FSA funds forward into the next calendar year. Alternately, the employer can allow the FSA account-holder extra time to use FSA funds from the prior calendar year (up to 2.5 months). Companies do not have to allow either choice, however. If no grace period or carry-forward is permitted at your workplace, you will want to spend 100% of your FSA funds before the end of the year.3
You could help your tax situation by contributing to certain retirement accounts.
Workplace retirement plans (like 401k, 403b, 401a, and 403b plans) allow workers to fund their accounts with pre-tax dollars. By directing money into these retirement savings vehicles, you position yourself for federal tax savings in the year of the contribution. It could result in significant tax savings. No retirement plan at work? You may be able to utilize a traditional IRA to save with pre-tax dollars, as long as you meet the requirements and limitations.
While next April may seem far off, this is an excellent time to think about tax-saving possibilities. You have plenty of time to explore your options.
Andrea L. Blackwelder, CFP®, ChFC and Joseph D. Clemens, CFP®, EA are the founders and partners of Wisdom Wealth Strategies. Their shared passion is simple: to bring financial empowerment, understanding, and peace-of mind to people who wish to improve their financial future, build wealth for their families, and achieve financial independence. Click here to find out more about how you can work with the Denver Financial Advisors at Wisdom Wealth Strategies.
Citations.
1 – web.blockadvisors.com/estimated-tax-payments-2019/ [5/23/19]
2 – turbotax.intuit.com/tax-tips/tax-refund/top-5-reasons-to-adjust-your-w-4-withholding/L8Gqrgm0V [5/23/19]
3 – investopedia.com/ask/answers/111615/does-money-flexible-spending-account-fsa-roll-over.asp [5/21/19]
4 – fool.com/retirement/2018/12/23/the-6-best-tax-deductions-for-2019.aspx [12/23/18]
“Wisdom Wealth Strategies, LLC is a registered investment advisor offering advisory services in the states of Colorado and California, and in other jurisdictions where exempted.” This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates