As 2019 slowly but surely winds down, you may be too preoccupied with holiday shopping and last-minute travel plans to focus on your taxes. But actually, now's the perfect time to give yourself a tax checkup and see if any adjustments on your part need to be made before the end of the year. Here are a few key items to focus on.
1. Your tax withholding
Having the right amount of tax withheld from your paychecks will help ensure that you don't run into trouble during next year's tax season. And by "trouble," we're talking about owing the IRS a whopping sum you can't pay, and being penalized financially for underpaying your taxes.
The reason it's so important to check your withholding is that ever since the 2018 tax overhaul went into effect, new IRS withholding tables were issued that, in many cases, put more money into workers' pockets up front. The problem, however, is that some people have been getting a little too much money up front, and if you're one of them, it could spell trouble next April. Therefore, use the IRS's Withholding Estimator to see whether it pays to quickly submit a new W-4 to your employer. If it turns out you've been underpaying your taxes, withholding enough in December could help correct that mistake (though you'll reduce your paycheck in the process, so keep that in mind, too, especially as we go into the holiday season).
2. Your retirement plan contributions
The more money you contribute to a traditional IRA or 401(k) plan, the more money you get to shield from taxes. If you haven't been funding your retirement account as aggressively as you could be, now's your chance to ramp up and get those contributions in before 2019 closes out.
For the current year, you can max out an IRA at $6,000 if you're under 50. If you're 50 or older, you get a $1,000 catch-up option that raises your limit to $7,000. Meanwhile, 401(k) contribution limits are much higher -- $19,000 for workers under 50, and $25,000 for those 50 and over. (And, they're going up in 2020.)
Now, imagine you're in the 24% tax bracket and contribute $2,000 to a traditional 401(k). That saves you $480 on your taxes, since the IRS can't tax you on that $2,000 of income. But if you manage to eke out an additional $2,000 for that 401(k) between now and the end of the year for a total of $4,000, you'll save yourself $960 in taxes.
Not only is contributing more to a retirement plan a good move as far as your golden years are concerned, but it can also help if you're worried you haven't been withholding enough tax from your income throughout the year. That said, the aforementioned tax breaks only apply to traditional IRA and 401(k) contributions. If you're saving in a Roth IRA or 401(k), you won't get the same up-front tax break on the money you put in (though you'll reap other benefits, like tax-free withdrawals during retirement).
3. Your records
If you're planning to itemize on your 2019 taxes or claim deductions for business expenses, then it's imperative that you maintain solid records to ensure that your return is accurate. If you can't remember the last time you filed important tax information away, take the time to comb through your records and make sure those details don't get lost in the shuffle. And if you see that you haven't racked up as much money in deductions as expected, you'll have an opportunity to ramp up in December. That could mean buying office furniture or supplies for your business, or giving a little extra money to charity to score a higher write-off.
The sooner you assess your tax situation, the better equipped you'll be to make changes between now and the end of 2019 that lower your IRS burden and help you financially. So carve out a little time for a tax checkup -- you'll be thankful for it after the fact.