Now that the tax deadline is behind us and your return is nice and filed away, you may be thinking you're done with taxes for the near term. Not so fast. There are actually a number of moves you can make over the next eight months to slash your 2018 tax bill. Here are a few to consider.
1. Max out your IRA or 401(k)
One of the easiest ways to lower your taxes is to contribute as much as possible to a 401(k), or if you don't have one through your employer, an IRA. If you're under 50, the maximum contribution for the 2018 tax year is $18,500 for a 401(k) and $5,500 for an IRA. If you're 50 or older, these limits go up to $24,500 and $6,500, respectively.
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Either way, your savings will be a function of your effective tax rate, so the higher that rate is, the more your tax bill gets reduced. For example, if you put $18,500 into a 401(k) and your effective tax rate is 30%, you'll cut your IRS bill by $5,550, just like that. Just as importantly, you'll be doing your part to build a nest egg, which you'll no doubt appreciate once you retire.
2. Keep accurate records
It may seem like a simple piece of advice, but countless filers run into trouble when they sit down to prepare their taxes and realize they don't have the information needed to accurately claim deductions. Guessing at those figures, however, is a good way to land on the IRS's audit list, so rather than risk it, keep a running tab on things like charitable contributions, medical expenses, and small business expenses you incur during the year. Similarly, if you use your vehicle for work purposes, be sure to track your mileage for deduction-claiming purposes.
3. Take losses to offset gains
Maybe you have a loser stock taking up space in your portfolio alongside a stock that's surprisingly up. Sell the latter, and you'll be hit with capital gains taxes. But if you sell an equal amount of underperforming investments at a loss, you'll offset those gains, thereby keeping your tax bill manageable. Even if you aren't expecting any gains this year, if you have an investment you really need to unload, you can apply the associated loss you take to offset up to $3,000 of ordinary income. If your paycheck went up this year and you're not sure how it will impact your total tax bill, that's something to consider.
4. Make an extra mortgage payment
You may have heard that the mortgage interest deduction met its demise at the end of 2017, but that's not at all true. You can still deduct mortgage interest on a home loan worth up to $750,000, which is down from the $1 million threshold from previous tax years. However, if your mortgage is higher than $750,000 but you signed it while the previous tax laws were in play, you're grandfathered into the old system.
Assuming you qualify to capitalize on this tax break, making an extra mortgage payment (or several extra payments) this year could work out for you taxwise. That's because you'll boost your mortgage interest deduction for 2018, not to mention save some money on interest in the long run and shorten the length of your loan repayment period. Furthermore, if you're right on the cusp of itemizing on your 2018 return versus taking the now-larger standard deduction, pumping a little extra money into your mortgage could end up sealing the deal.
Though most of us would probably rather forget about taxes for awhile, the fact of the matter is that putting some thought into them regularly could result in some serious savings. And that's reason enough to keep tax matters on your radar.
