As the calendar year draws to a close, we all tend to take more notice of our taxes. But waiting until December to focus on tax matters means leaving things to the last minute and running the risk that you'll miss out on a key savings opportunity along the way. With that in mind, here are a few tax moves it pays to make today -- even though the end of 2018 is still several months away.
1. Ramp up your IRA or 401(k) contributions
One of the easiest ways to lower your taxes is to take some of your earnings and put them into a long-term savings plan that you stand to benefit from -- namely, a traditional 401(k) or IRA. With either account type, you'll get a tax break on the money you put in, and your associated savings will be a function of your effective tax rate. This means that if you normally lose 30% of your income to taxes and put $3,000 into either account, you'll save yourself $900.
For the current tax year, workers under 50 can contribute up to $5,500 to an IRA, and $18,500 to a 401(k). If you're 50 or older, you get a catch-up provision that increases these limits to $6,500 and $24,500, respectively. Therefore, if you're nowhere close to hitting the top of these thresholds, it pays to start taking steps to ramp up sooner rather than later.
Remember, most folks can't just snap their fingers and magically come up with extra money to save. Rather, they need to actively reduce their spending to free up cash, or perhaps work a second job to procure that additional money. And better to do that now, before the holidays and their associated expenses kick in.
2. Appeal your property taxes
There was a time (think as recently as last year) when folks who itemized on their tax returns could deduct their property taxes in full. But thanks to changes in the tax code, your property tax deduction may be limited for the current year. At present, you can only deduct a total of $10,000 in state and local taxes. If you live in a state with high property taxes, you'll therefore risk paying out a large chunk of money that offers you no tax benefit whatsoever.
That's why it's smart to look into appealing your property taxes. Often, this actually means arguing against your home's assessed value, keeping in mind that your property tax bill is really just a function of your home's assessment times your local tax rate.
It makes sense to appeal your property's assessment if you feel that number is higher than what your home would sell for in today's market. The process by which to do this varies from state to state, and even from county to county within the same state, so your best bet is to get the ball rolling now. Even if it's too late for the current year, you're better off getting started so that you're in a good position to lower your property taxes for 2019.
3. Get your records organized
Whether you're planning to take deductions on your upcoming tax return for mileage, business expenses, medical bills, or charitable contributions, you need accurate records to claim the right amount. And you do want to claim the right amount, because if you don't, and you're audited, you could land in serious hot water with the IRS. So if you haven't been keeping very good track of the aforementioned items, take the time to sort through your records and put a filing system in place.
An even better bet? Scan receipts and documents that pertain to your taxes so you never have to worry about accidentally throwing out or losing physical copies. Incidentally, this will make filing your 2018 tax return a lot less stressful when the time comes to do it.
Even though autumn isn't a natural time to have taxes on the brain, it never hurts to be thinking about them well ahead of the end of the year. With any luck, these moves will help you save money or identify savings opportunities that shield more of your hard-earned cash from the IRS.