10 Things to Do Now to Lower Next Year's Tax Bill

By   

View as:

preparation of Internal Revenue Service form 1040 for income report and US tax return
Photo credit: Alexey Kamenskiy/shutterstock

For most taxpayers, the immediate focus in the new year is probably on getting 2017 materials together ahead of the April rush. But it also makes sense to start preparing now for the 2018 tax year. These tips can help individuals and small-business owners lower their tax burden next year, avoid audits, and feel a little better about the whole process. The new tax law signed by President Donald Trump in December 2017, however, may also make this a good year to seek help from a professional when making tax decisions.

list of withholding taxes from the pay stuff
Photo credit: JohnKwan/shutterstock

Although it's nice to get a big refund after sending in a tax return, it's even better to optimize tax withholding and get a little more money in every paycheck. The Internal Revenue Service has a withholding calculator taxpayers can use to figure out the right amount of income tax to be withheld from their paychecks.
zimmytws/shutterstock
Photo credit: paper person under an IRA umbrella with cash

Taxpayers might want to increase their retirement contribution rate during 2018, helping grow a retirement fund while also lowering their tax bill. Investments in tax-advantaged accounts -- such as a traditional IRA, 401(k), and 403(b) -- grow on a tax-deferred basis and can be withdrawn without penalty starting at age 59½.

mixed group of students in class
Photo credit: Monkey Business Images/shutterstock

People spending time and money pursuing higher education and enrolled in a post-secondary school, such as a two-year or four-year college or vocational program, may be eligible for a Lifetime Learning Credit worth up to $2,000 a year. Taxpayers may be able to claim the credit if their spouse or dependent has eligible higher education expenses.
health insurance forms
Photo credit: vinnstock/shutterstock

While the new tax reform bill repeals the individual mandate, that change doesn't go into effect until 2019. So for the 2018 tax year, the penalty for not having health insurance remains the greater of 2.5 percent of household income (up to the annual national average premium for a bronze plan) or $695 per adult and $347.50 per child (up to $2,085 total).  

baby's foot in mother hands
Photo credit: Kiselev Andrey Valerevich/shutterstock

Michael Raanan, a former IRS agent, reminds taxpayers that a major "life event," such as a marriage or the birth of a child, should prompt submission of a new Form W-4 to an employer. New circumstances may affect the amount of income tax withheld from a worker's pay.
closeup of hands of businessman filling tax form
Photo credit: Creativa Images/shutterstock

Anyone earning money on the side through a freelance job, their own business, or even from interest or rental income should remember to pay estimated federal and (when applicable) state taxes four times a year. Failure to do so can result in costly penalties for those who expect to owe at least $1,000 in taxes.
hand writing a check
Photo credit: Icatnews/shutterstock

Anyone starting a business should consider opening separate business credit card, checking, and savings accounts. Keeping finances separate could make it easier identify and organize business expenses when filing a tax return, and helps provide entrepreneurs with real-time information throughout the year.
woman with touchpad smiling in car
Photo credit: Kekyalyaynen/shutterstock

Taxpayers who itemize deductions should track how far and when they drive for medical, volunteer, or nonprofit activity. Even short trips to the local drugstore to pick up a prescription or to a local charity to drop off a donation can add up to a decent tax deduction. Self-employed individuals can write off many work-related trips against their business income.
receipts with calculator and pen on table
Photo credit: Andrey_Popov/shutterstock

In addition to keeping an accurate mileage log, business owners should keep expense reports for all other kinds of business-related purchases, travel, and meals (note dining partners' names and the purpose of the meeting). A shoebox full of paper receipts could be a pain later, so make this the year to get organized, perhaps with the help of an app.
businessman's hand is calculating and working
Photo credit: Bacho/shutterstock

Make notes and keep documentation for everything. It's important to have proof of events and expenses if needed, and sometimes it can be hard to remember specifics. This is particularly important for events that occur early in the year, which may be long forgotten when it comes time to file 2018 returns next year.

Cheapism.com participates in affiliate marketing programs, which means we may earn a commission if you choose to purchase a product through a link on our site. This helps support our work and does not influence editorial content.