Taxes Are Changing: Find Out How You Can Save

Tax saving

Whether you agree or disagree with the new tax laws, most every working American agrees on one thing—the lower your tax burden the better. One of the easiest ways you can pay less of your 2018 salary to Uncle Sam is to contribute to a 401(k) or IRA, since the money you put into either of these is tax-free. This means if you contribute $5,000 to your IRA in 2018, and your tax rate is approximately 30%, you have just saved yourself $1,500 in taxes in a simple, yet highly effective manner. While the annual 401(k) limit is increasing slightly next year, the annual contribution limit for your IRA remains the same as the 2017 limit–$5,500 for those under the age of 50, and $6,500 if you are over the age of 50.

Mortgage Interest Deductions

Although it seemed to be touch-and-go for a while regarding mortgage interest deductions, the tax benefit of mortgage interest deduction was not taken away. Therefore, rather than making only your regular 12 monthly mortgage payments in 2018, make at least one additional payment to allow yourself a slightly larger interest deduction—and shorten the life of your home loan. Consider making more charitable contributions in 2018—not only will you feel better about yourself, you can deduct these contributions (so long as you have a receipt).

Self-Employment Tax Deductions

If you happen to be self-employed and use your vehicle for work purposes it can really pay off to take the time to keep a detailed vehicle log. You can deduct mileage on your 2018 taxes when you attend a work-related meeting, drive to an office, or run a business-related errand. You should also consider setting up a home office, which will allow you to claim the home office deduction so long as you dedicate a specific space to your office. This means that you cannot work at your kitchen table and call it a “home office.”

FSA Tax Deductions

If you work for an employer, and your employer offers a flexible spending account (FSA), it could be of significant benefit to sign up. An FSA allows you to pay for healthcare and child care expenses with pre-tax dollars, which lowers your overall tax burden. You will be able to contribute up to $2,650 to a healthcare FSA, and up to $5,000 to a dependent care FSA in 2018. Perhaps you, like many other homeowners, saved money on your taxes by prepaying state income taxes or property taxes.

Lowering Your Taxes as a Financial Goal of 2018

Unfortunately, the new tax law will not allow this, although you could have paid the last installment of your 2017 taxes prior to 2018, and received a bit bigger deduction for 2017. The new tax overhaul caps the deductions for state and local income and property taxes at $10,000 combined—a major blow to homeowners in high-priced housing markets. Lowering your taxes should definitely be a financial goal of yours for 2018, and by implementing the tips above, you can do just that.