Tax time is almost here again. Are you one of those filers who wait until the last minute? You’re not alone. Unfortunately, procrastination can be costly, especially in retirement when every dollar count. If you wait, you may rush and that may cause you to miss valuable deductions, credits, and other strategies.
The good news is you still have time to prepare. Below are five actions you can take today to get prepared for tax time and possibly save yourself some money. If you haven’t gotten started on your tax planning, now is the time to do so.
Get organized early.
Time is a valuable asset, especially when it comes to tax planning. Take time now to organize all your receipts for major purchases, especially for things that may be deductible like business expenses or health care costs.
You should also use this time to get all your 1099s, W2s, and other income documents in order. If you haven’t received some yet, call the appropriate administrator and ask for one. The earlier you can ballpark your total income for the year, the sooner you can start analyzing possible deductions and credits.
Track your medical expenses.
Did you have major medical expenses in 2019? If so, those expenses could save you tax dollars. You can deduct medical expenses that exceed 10% of your adjusted gross income in 2019.1
Of course, you need to know how much you had in medical expenses and be able to document those costs to take advantage of this deduction. Track down all statements and receipts to find a total. You also may want to contact your health care provider for documentation if necessary.
Make a retirement contribution.
Do you have a traditional IRA? If so, you still have time to make a contribution and potentially realize a tax deduction. In a traditional IRA, your contributions are tax-deductible, assuming you meet certain income restrictions. Growth is tax-deferred and your withdrawals in retirement are taxed as income.
You can make a deduction up to April 15 and count it as a 2019 contribution. In 2019, you can contribute up to $6,000, or $7,000 if you are 50 or older.2 If you haven’t yet met the maximum, you can still do so and possibly see a deduction on your upcoming return.
Take your RMD.
If you’re age 70 ½ or older, your tax issues may not involve contributions but rather withdrawals. At age 70 ½, you are required to start taking minimum distributions from your 401(k), IRA, or other qualified accounts. These required minimum distributions (RMDs) amounts are based on your account balances and your age.
What happens if you don’t take your RMD? You could face a penalty of up to 50% of the required withdrawal amount.3 Fortunately, you have until April to take your RMD for 2019. If you haven’t done so yet, now is the time to make that distribution.
Think about the future.
Tax planning isn’t just about your upcoming return. It’s also about your long-term future. What steps can you take now to reduce your tax exposure ion future returns?
For example, perhaps you could create tax-efficient income in retirement. Maybe you can take advantage of additional deductions and credits by planning ahead. You may be able to reduce your taxable income by delaying your Social Security filing. A financial professional can help you explore these options and develop the right strategy for your needs.
Ready to take control of your taxes this year? Let’s talk about it. Contact us at Northern Plains Insurance & Financial. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation.
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