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Take Steps to Ease Tax Burden for 2019 and Beyond

Local Financial professional Tom Jacobs from Jacobs Financial Services discusses some of the most important things to consider when planning for the future.

GRAND RAPIDS, Mich — Tax planning is an important issue year-round.

There’s been a lot of research that shows people who actively engage in tax planning significantly boost their income in retirement.

On top of that, we just finished filing under the new Tax Cuts & Jobs Act. Now that we know how the new law impacts us, this is an ideal time to incorporate tax planning strategies.

Adjust Your Withholding

Perhaps the biggest or most noticeable changes to the tax code are the new, lower income tax rates, which prompted changes to the IRS withholding tables.

The IRS encouraged people to review and update their W-4 form, which determines how much income tax is withheld from your paycheck.

However, a recent survey shows most workers never did that and could be withholding the wrong amount.

This means you might be getting a smaller refund this year, or might even owe money to the IRS. If you found yourself in this situation, you may need to adjust your withholding.

There is an IRS calculator to help you determine your correct withholding. You can find it on my website, jacobsfs.com

Plan for Charitable Giving

Getting a tax deduction has always been an incentive for people to give to charity, but you only get that deduction if you itemize your taxes.

The new tax law nearly doubled the standard deduction, so the number of people who itemize is expected to drop dramatically.

To make the most of your charitable donations, consider using the “bunching” strategy. Instead of giving to charity every year, give twice as much every other year.

Bunching may or may not work for your personal situation, depending on how much you plan to donate and how close you are to having enough deductions to exceed the threshold for the standard deduction.

Maximize Retirement Contributions

When you contribute to your 401(k) or traditional IRA, you are reducing your taxable income for the year.

The money you put into a 401(k) also grows tax-deferred until you withdraw it in retirement.

Besides the tax benefits, setting up a savings plan is an important part of increasing your retirement security.

My main goal is making sure my clients’ money is invested in places where it can’t be lost. Our expertise is in safe money concepts and giving our clients peace of mind knowing their retirement is secure.

Diversify Your Savings

A lot of people continue to invest in pre-tax accounts, like traditional IRAs and 401(k)s. Money in these types of accounts will be taxed as you withdraw it, meaning your retirement savings won’t go as far as you think.

A big mistake I see is not having tax diversification, which isn’t talked about as much as other types of diversification, but it’s just as important.

An account like a Roth IRA will give you tax diversification because your money is taxed upfront, but you can withdraw it tax-free in retirement.

You may want to consider shifting money from a traditional IRA or a previous employer’s 401(k) into a Roth IRA. We are in a historically low tax environment with the new tax law, meaning now might be a good time to consider moving money into a Roth.

You’ll have to pay taxes at the time you move the money, which is why some people like to do a partial conversion. This means they are switching over only as much as they’re able to pay taxes on this year, and moving more money next year.

To learn more you can visit www.jacobsfs.com

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