Now that summer is kicking into gear, many of us are more focused on barbecues and beach days than potentially tedious matters like taxes. And with your next return not due until April 2020, you may not have the patience or desire to deal with tax matters anytime soon.
But here's the thing: The moves you make during the year will dictate how well you fare the next time you do sit down to file a return. And if you want your 2019 tax bill to be as low as possible, here are a few moves you need to make in the coming months.
1. Max out your retirement plan contributions
The more money you contribute to a traditional IRA or 401(k), the less income the IRS can tax you on. For the current year, you can put up to $6,000 into an IRA if you're under 50 and up to $19,000 into a 401(k). If you're 50 or older, you get a catch-up option that raises these limits to $7,000 and $25,000, respectively.
How much can you save on taxes by maxing out a retirement plan? Let's imagine you fall into the 24% tax bracket and max out a 401(k) at $19,000. In doing so, you'd effectively shave $4,560 off of this year's tax obligation -- not too shabby.
2. Unload losing investments
Chances are, you have a few investments taking up space in your portfolio that have been underperforming. Selling those investments at a loss might seem like a bummer, but actually, it can help lower your tax bill.
Investment losses can be used to offset investment gains so that if you take a $4,000 loss but also take in $5,000 in gains this year, you'll only have to pay taxes on $1,000. Furthermore, if your loss for the year exceeds your gains, you can use the remainder to offset up to $3,000 of ordinary income. This means that if you take a $4,000 loss but only have a $1,000 gain, the remaining $3,000 will negate $3,000 in regular earnings.
3. Fund an HSA
If you have a high-deductible health insurance plan (defined as a deductible of $1,350 or more for single coverage and $2,700 or more for family coverage), you may be eligible to contribute to a health savings account, or HSA. An HSA is a hybrid saving and investment account that lets you allocate funds for healthcare expenses.
Once you put money into an HSA, you can invest it for added growth so that by the time you retire, you'll have a pile of money allocated to healthcare expenses. But you'll also have the option to withdraw funds at any time to pay for medical bills.
For the current year, you can contribute up to $3,500 to an HSA for individual coverage or up to $7,000 for family coverage. If you're 55 or older, you can contribute another $1,000 as a catch-up. As is the case with a traditional IRA or 401(k), the money you put into your HSA is income the IRS can't tax you on.
4. Contribute to an FSA
If your employer offers a flexible spending account, or FSA, signing up is another great way to shave money off your tax bill. For 2019, you can contribute up to $2,700 to an FSA and use that money to pay for qualified medical expenses during your plan year. Unlike HSAs, FSA money isn't meant to be carried over from year to year. Generally, you have to use up your balance or risk losing it. But as long as you do a good job of estimating your healthcare costs, funding an FSA could shield more of your earnings from the IRS.
The last thing you want to do this year is pay more taxes than necessary. Take some time to make these key money-saving moves. You'll be thankful you did when you sit down to file your 2019 return.
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