Many people are still in shock after filing their 2018 federal and state income taxes. Because the new federal tax law — the 2017 Tax Cuts and Jobs Act — reduced marginal tax rates, many people expected a refund would be coming their way. But for some high-income households, that turned out not be the case.
Get More Taken Out of Each Paycheck.
Those who receive a W-2 form can contact their employer and change the amount of tax deducted from each paycheck for the remainder of 2019. For example, a married person can claim “Married, but withhold at higher Single rate” and 0 allowances on their Form W-4 payroll withholding form, which will increase the amount of tax taken out of each paycheck.
Set Aside More from Any Bonus or Stock Award.
Employers often don’t withhold enough money from these one-time payments, causing people to underestimate how much they need to pay in taxes. Companies usually take out 22% for federal taxes on bonuses and stock awards, but if you are in the 37% tax bracket, you will owe more.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Adopt a Strategic Approach to Charitable Giving.
For those who didn’t get the tax benefit of charitable deduction in 2018, consider setting up a Donor Advised Fund (DAF). A DAF enables a person or couple to essentially prepay their charitable contributions for the next few years by setting aside this money in the DAF now. You can decide how much and to which charities to donate the money to over the coming years, while receiving all of the tax benefit this year.
For example, a married couple filing jointly that normally makes $20,000 in annual charitable contributions can set up a DAF and “lump” their contributions by giving $60,000 in 2019 to be distributed over a three-year period. By combining their $60,000 contribution with a $10,000 deduction for their local and state income taxes, they could deduct $70,000 on 2019’s federal income tax returns. In 2020 and 2021, they will take the standard deduction allowed by law, which is currently $24,400.
Fully fund 401(k) and Health Savings Accounts.
In 2019, people ages 50 and older can contribute up to $25,000 to their 401(k); those under age 50 can contribute up to $19,000. People with a high-deductible medical insurance plan should contribute money to their Health Savings Account. Individuals can contribute up to $3,500; couples can contribute up to $7,000; and those age 55 and over can contribute an additional $1,000.
Business Owners Need to Do the Same.
Professionals, sole proprietors and other business owners need to contribute to retirement plans for the self-employed. These include SEP IRAs, which allow a person to potentially contribute up to $56,000 on a before-tax basis in 2019. Solo 401(k) plans and defined benefit contribution plans often allow a higher tax-deductible deposit.
Contribute to a 529 College Education Plan.
Some states allow taxpayers to contribute to these plans and receive a deduction on their state income taxes. In Georgia, for example, a married couple can receive a deduction on state income taxes for contributions up to $4,000 per child.
-
Four Essential Michael Jordan Quotes on Life in RetirementThe GOAT of basketball on how he spends his time and what he misses.
-
Three Critical Tax Changes Could Boost Your Paycheck in 2026Tax Tips The IRS predicts these tax breaks may change take-home pay in 2026. Will you get over $1,000 in tax savings?
-
The OBBB Ushers in a New Era of Energy Investing: What You Need to Know About Tax Breaks and MoreThe new tax law has changed the energy investing landscape with expanded incentives and permanent tax benefits for oil and gas production.
-
Ten Ways Family Offices Can Build Resilience in a Volatile WorldFamily offices are shifting their global investment priorities and goals in the face of uncertainty, volatile markets and the influence of younger generations.
-
I'm a Financial Planner: If You're Within 10 Years of Retiring, Do This TodayDon't want to run out of money in retirement? You need a retirement plan that accounts for income, market risk, taxes and more. Don't regret putting it off.
-
How the One Big Beautiful Bill Will Change Charitable GivingTaxpayers who don't itemize will be able to take a bigger deduction for donations, which could boost giving. However, high-income donors could see their tax benefits reduced.
-
Your 401(k) Can Now Include Alternative Assets, But Should It? A Financial Adviser Weighs InMany employer-sponsored plans offer limited investment options, which can stunt growth. But participants considering alternatives might need some sound advice to get the most from their accounts.
-
Will Taxes Shred Your 401(k) or IRA During Your Retirement? It's Very LikelyConventional wisdom dictates that you save in a 401(k) now and pay taxes later, but turning that rule on its head could leave you far better off. A financial planner explains why.
-
I'm a Real Estate Investing Pro: This 1031 Exchange Strategy Can Triple Your Cash FlowSavvy investors can use 1031 exchanges to unlock value by moving capital across markets in a play called geographic arbitrage. These tax implications can make or break the strategy.
-
Don't Let Your Equity Compensation Trip You Up: A Financial Expert's GuideStock options, RSUs and other executive perks can come with some serious strings attached. To avoid a nasty tax surprise, you need a plan.
