Many individual tax filers are adjusting their approach now that the realities of the TCJA (Tax Cuts & Jobs Act) of 2017 are in sharper focus; some trusted deductions are harder to take advantage of, while standard exemptions were made more generous. There was more than a bit of grumbling in Spring 2019 as some saw that their refunds shrank, sometimes significantly. There’s a bit more math and strategy involved these days.
A Few to Consider if You’re Looking to Maximize Your Refund Through Deductions
- Are you making the most of employer 401Ks (and matching contributions)? This is still a tried-and-true avenue; see if you have any wiggle room to increase your contributions before the end of the year.
- Do you have income from taxable investment vehicles? If you haven’t before, look into tax-loss harvesting; selling some underperforming investments to offset a capital gains hit from others. (This doesn’t work with 401Ks or other tax-deferred vehicles).
- Defer any bonuses or late-year windfalls, if possible. If you know you have employer bonuses or similar income on the way that you know you can live without until Jan. 2020, consider deferring them—especially if taking it will bump you into a higher tax bracket.
- Filing jointly? Collaborate with your spouse ahead of time! It’s worth your time to do a Q3/Q4 check-in to make sure that one (or both) of you don’t have unclaimed income (or overlooked major deductions) that could jeopardize the amount of your refund—or even leave you owing money come tax time.
Double-check your math and spelling
This is an easy one that can cost you. Example: A friend of ours found that when he filed jointly with his wife and sent in his estimated payment, the payment was not credited and he got a summer full of demands to pay—all because the wife was the “primary filer” and he hadn’t included her name and Social Security number on the check (which drew on his account). This process dragged until fall before being resolved and they’re still waiting on their refund. Little details can cost you, so take a few extra minutes and double-check everything when your eyes are fresh!
Know Where the Guardrails Are, Especially If You’re a Regular Joe or Jane
As reported in Fox Business and elsewhere, the IRS is focusing its unwanted attention—in the form of audits—further down the income scale owing to the fact that the IRS’ diminished resources make going after lower-income taxpayers cheaper and easier. This is something to keep in mind if you are overly aggressive in writing things off (home office writeoffs are one item commonly misunderstood and frequently abused). It’s easier now for Regular Janes and Joes to wind up in the auditor’s hot seat; consult a tax specialist to make sure you’re “coloring inside the lines” when looking for available writeoffs.