While a lot of people may be smiling when they file their federal income tax returns this year, there will be some frowns, too.
Beginning in 2018 tax rates have been lowered for many people thanks to the Tax Cuts and Jobs Act of 2017. A person or couple earning roughly the same amount in 2018 as in 2017 could very well owe less money or receive a larger refund check this spring. However, since a number of exemptions and deductions were limited or eliminated beginning 2018, not everyone will be better off.
Steps to Get Your Tax Preparation in Gear
For those who haven’t kept good records this year or met with their tax adviser and don’t know how much they may owe for 2018, there is time to get organized. To make certain you have enough cash available to pay the IRS when April 15 rolls around, I recommend taking these steps now:
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Collect all W-2 and 1099 Tax Forms, Determine 2018 Business Income and Expenses as Well as Capital Gains.
Provide this information, as well as a copy of your 2017 tax returns, to your accountant and ask them to compile a quick estimate of how much you may owe.
Beef up your Savings Account.
To relieve any anxiety over having enough money to pay your taxes, plan to have more money than you may need. That means depositing any extra cash into a savings account for a few weeks.
For example, if you expect a bonus from your employer soon, deposit those funds into an interest-bearing savings account so it’s there if needed to pay taxes. Once you have a hold on what your tax bill will be, any extra cash can then be invested for future goals, like retirement or college education, or paying down debt. If you’re expecting a refund, start putting that cash to good use rather than letting it sit idle in the bank.
Consider Selling Stock Now to Pay Capital Gains Taxes.
If you don’t have extra cash coming your way in the next several weeks, and your savings account balance is low, consider selling additional stock now to cover 2018 capital gains tax. Given the stock market’s gains in January of 2019 — the Standard & Poor’s 500 index increased nearly 8% that month — it may be a good time to sell some stock and use those profits for tax payments. Typically, I don’t like dipping into investments to pay taxes, but it’s better than missing the tax deadline and incurring penalties, or taking out a loan.
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