Spring has finally sprung…or has it? Mother Nature has a funny sense of humor…and great timing for April Fools’ Day!
I don’t know about you, but I’m certainly welcoming the change. Spring tends to come right at the perfect time and begins to lift our spirits and attitudes.
And thank goodness, right?
Because, if you’re not aware, it’s also tax season.
Personally, I don’t think it’s any coincidence that the taxes are due right around the same time as the grass begins to green, the flowers begin to show their colors, and birds start singing their sweet songs.
The government is good. Really good, aren’t they?
I’m guessing they assumed this timing could soften the “blow” of preparing, filing, and paying due taxes.
Whether or not the timing softens the pain of filing taxes, I thought I’d offer a few tips that might be helpful as the April 15th tax deadline draws nearer.
Don’t Forget About IRA Contributions
If you have a Traditional IRA AND had earned income in 2018, contributions can still be made for the 2018 tax year.
- Contributions must be reported on your tax return using the 1040 or 1040A Form and must be finalized by April 15th, 2019.
- If you are under 50 years, the contribution limit for 2018 is $5,500.
- If you are over 50 years, you can add $1,000 as a “catch-up” and contribute up to $6,500
- Please be aware of phase-out thresholds. Depending on your filing status and whether or not you have an employer-sponsored plan, you may not be able to contribute to your Traditional IRA and receive a tax deduction. For more information on this, click here.
- If you can contribute and receive a tax deduction, the amount you could save looks like this:
IRA Contribution Amount
Your Current Tax Bracket
Total Tax Savings
Remember, the Tax Code Changed
2018 is the first year that we will all experience how the Tax Cuts and Jobs Act really affects our pocketbooks. Remember, one of the biggest changes to the code was the changes to the Standard Deduction. The deduction basically doubled for everyone and will most likely simplify the filing process and eliminate the need for you to itemize, as the Standard Deduction may provide you greater tax savings.
| Filing Status||2017 Tax Year||2018 Tax Year|
|Married, filing jointly||$12,700||$24,000|
|Married, filing separately||$6,350||$12,000|
|Head of Household||$9,350||$12,800|
Further Tax Breaks If Over 65 Years Old
Some say age comes with wisdom…or is it wisdom comes with age? Either way, once you cross the threshold of being 65 years young, your Standard Deduction increases by $1,600 if you file Single or Head of Household. If you are Married Filing Jointly and you OR your spouse is 65 or older, you may increase your standard deduction by $1,300.
If You’re Selling Your Home
If you’re planning on moving or downsizing, the IRS lets you exclude from your income up to $250,000 of capital gains on the sale of your home. That’s if you’re single. The exclusion rises to $500,000 if you’re married.
For example, if you purchased that 4 bed, 2.5 bath home back in 1990 for $150,000 and sold it for $300,000 today, you won’t have to pay any taxes on the gains. Just remember that the house must be your primary residence, you must have owned it for at least two years and have lived in the house for two of the five years before the sale. For more information on conditions, check out this fun read from the IRS.
Though it may be April Fools’ Day, there ain’t no foolin’ when it comes to filing your taxes. Consider the key points discussed above in order to make the most tax situation. And, don’t forget, the deadline to file is April 15th!
Related article: Factors That Affect Your Tax Obligations
-Written by David Hicks, Vice President and Investment Advisor at Oakmont Advisory Group.