Skip to main content

Watch our latest video: "3Q2023 Market Review and Outlook for 2023"

Tax Refund Orange Button on Computer Keyboard Internet Concept

3 Ways to Lower Your Tax Bill

Photo of author, Nicole Gabriel, CFP®.
Nicole Gabriel, CFP®
Financial Strategist

Did you know that nearly one-third of the taxpayers facing a federal tax bill this year (2018) received a refund last year (2017). *

The Tax Cuts and Jobs Act was signed into law on December 22, 2017 in an effort to reduce tax rates for business and individuals and to simplify the filing process. For many clients and individuals, these efforts didn’t come to fruition. Whether you were pleased or displeased with your 2018 tax return, it’s never too early to start preparing for your 2019 taxes.

Here are three timely tax-saving strategies you can employ now to lower your tax bill next year.

#1 Withholding Tax
The Tax Cut and Jobs Act adjusted the tax withholding tables. This changes the amount of income taxes withheld from each paycheck. If you withhold too much, you may get a refund the following year, but you will have given the government an interest-free loan. If you don’t withhold enough, you will see a larger paycheck, but you may owe the IRS the following year. To review or change your withholding on your W-4, you should contact your Human Resources Department.

#2 Tax-Savings Opportunities at Work
Saving in your 401(k) has two benefits: it lowers your taxable income and it builds toward a secure retirement. The annual contribution limit for 401(k) plans, as well as 403(b) and most 457 plans, is $19,000 for 2019, and those taxpayers age 50 or older are entitled to an additional $6,000.

If your employer offers a Heath Savings Account (HSA), it is a benefit you should consider! These accounts offer a triple tax advantage! The money goes into the account pre-tax which reduces your taxable income, the distributions are tax-free (with a few exceptions), and the earnings accumulate tax-free. If you are interested in Heath Savings Accounts, please read the article by my colleague, Chelsea Clegg.

#3 Plan Charitable Giving
Because the Tax Cut and Jobs Act increased the Standard Deduction, many taxpayers may no longer itemize, making them unable to take a charitable deduction. However, bunching charitable donations may allow you to itemize your return and take advantage of a charitable deduction. For example, if a couple currently donates $15,000 a year to charity, they may only take the standard deduction of $24,000 per year. This means over the course of two years, they would have total deductions of $48,000.

However, if they were to bunch their charitable giving in 2019 by donating a total of $30,000 in one year, they would be able to take an itemized deduction of $30,000. Since they bunched their charitable giving in 2019, they would make no donations in 2020 and use the standard deduction of $24,000. This leads to total deductions of at least $54,000. The couple is still donating $30,000 to charity, but by bunching their donations to fall within the same tax year, they can deduct more! See chart below:

No Bunching With Bunching
2019 2020 2019 2020
Charitable Donation: $15,000 $15,000 $30,000 $0
Deduction: $24,000
Total Deductions: $48,000 $54,000

Taxes and Tax Planning is complicated and even more so in light of the recent tax law changes. Your McKinley Carter advisory team is equipped to be a source of help in making good financial decisions to help you in your pursuit of a good life. We invite the opportunity to talk about your specific situation today or during our next conversation.

Source: *NerdWallet 2019 Tax Study

Related Insights
I Stock 174879501 IRS USE

IRS Interest in Interest Income Ignited

Interest rates (and interest income) are significantly higher than we've seen in many years. And many taxpayers may be surprised when they see their next tax bill due from interest income earned in their taxable accounts—whether from their investment portfolio, or their bank or credit union. Be prepared.

Read More
JAE Savvy Blog Image copy USE

How Women Can Benefit from SECURE 2.0

It is no secret that the financial odds are stacked against women. Whether caused by life circumstances outside of their control, unfair perceptions, or chosen priorities, women, on average, have more financial stress to overcome than men. Stress of any kind can take its toll on your health and well-being.

SECURE Act 2.0 continues a push in legislation to address some of the financial stress points that women face. Learn which new potential stress-reducer might benefit you?

Read More
Lemonade 3571083 1920 JAE blog

Making Lemonade from Lemons: How to Get Ahead with Capital Losses

We all invest money for one primary reason—to make money. No doubt, your financial plan outcome hinges on achieving some amount of return on your money you’ve accumulated. While the whole point of investing is to get a positive return on those resources over your holding period, your success does not rise nor fall on the consistency of price increases. Well-formed financial plans consider not only reasonably anticipated rates of return but also the variability of outcomes. In short, your financial plan should not experience shock from short-term fluctuations in the markets. Learn how to get ahead with capital losses.

Read More