Tips for Tax Season!

Tax season is upon us! Here are some things to consider over the next 2 months…

1. You can contribute to tax-advantaged retirement accounts until tax day…for the prior year! Significant tax advantages to be had here!

   • You can contribute to your retirement account for the prior tax year until taxes are due for that year. So you can take a deduction on your 2018 tax return for IRA contributions as long as those contributions are made by April 15, 2019. If you’re self-employed, you could defer 56k of income for last year! It’s not too late!

2. Filing early can help protect you from identity theft!
   • Thieves have taken to submitting tax returns using stolen Social Security numbers to claim refunds they aren’t entitled to? It’s best to beat the scammer to filing a return with your Social Security number! The earlier you file, the better. Identity theft can DEFINITELY erode away at your ability to save for retirement, so follow the IRS guidelines to protect yourself.
3. Your Marginal Tax Rate and Effective Tax Rate aren’t the same!
   • If you are in a 22% tax bracket, it may sound like you’d pay 22% taxes on the entire amount you earn, but that’s not the case. Instead, only income above a certain threshold is taxed at 22%.
     • For example, for single filers, the 22% tax bracket covers income between $38,700.01 and $82,500 for the 2018 tax year. Income below $38,701 is taxed at a lower rate. So if your taxable income is $50,000, you’d only pay 22% tax on the $11,300 in income within the 22% bracket. The tax rate you pay on each additional dollar of income you earn is called your marginal tax rate. You can minimize the impact of this marginal tax rate through IRA and 401k contributions.

       Your marginal tax rate is different from your effective tax rate, which is the total amount you actually end up paying relative to total income (not just taxable income).

4. You’re required to pay taxes AS YOU EARN income
   • It may be too late to correct this for 2018, but according to the U.S. tax code, you can’t just wait until April to pay what you owe to the IRS. You’re required to pay in money as you earn income. For example, a Real Estate Agent who receives a 1099 for the prior year, is expected to have made estimated payments quarterly of 90% or more of the tax amount owed. It’s a good idea to make estimated tax payments and retirement contributions a priority each quarter!
5. Your Social Security benefits may be taxable – Surprised? Once your income exceeds a certain threshold, a significant amount of your benefits could be taxed.
   • $25,000 as a single filer or $32,000 when married file jointly, you could be taxed on up to 50% of Social Security benefits.
   • If your income exceeds $34,000 as a single filer or $44,000 when married filing jointly, you could be taxed on up to 85% of your benefits.

Check out this article with these and 37 other tips!

Taxes Can Be Complicated…Getting Informed Helps!