4 Ways to Slash Your 2019 Tax Bill Right Now

Photo by Doucefleur / Shutterstock.com

Tax Day may be the biggest deadline of income tax season but it’s hardly the only one. Tax deadlines fall throughout most of the year.

Several key deadlines arrive on Dec. 31, for example — and missing them can mean lost opportunities to lower your next tax bill.

It’s particularly important to be mindful of these deadlines this year. Last year’s tax reform legislation will have a major impact on your 2018 tax return — the one due in April 2019.

Here are several examples of tax deadlines and key dates that arrive on Dec. 31 rather than in April — and what you should know about them in the wake of changes in the tax code:

1. Stash cash in a workplace retirement account

Uncle Sam cuts a break to folks with certain tax-advantaged accounts, including individual retirement accounts (IRAs). You can contribute to such accounts as late as Tax Day — in April 2019 — and still be able to write off these contributions on your 2018 taxes.

For folks with employer-sponsored retirement accounts, such as a 401(k), the contribution deadline is generally Dec. 31. So, if you have a retirement plan through your workplace and want to use it to get a deduction on your next tax bill, stash cash there by year-end.

Keep in mind that contributions qualify for a deduction only if they are made to a “traditional” or “regular” account. Contributions to Roth accounts are not tax-deductible at the time of the contribution.

This is not to say a traditional account is always the best place to put your retirement savings, though. You might be better off saving in a Roth account — especially now. Due to tax reform, there is new reason to consider contributing to a Roth account. We detail this in “New Tax Rates Mean It’s Time to Rethink Retirement Strategy.”

2. Take your required minimum distribution

If you were 70½ or older going into 2018, Dec. 31 is the date by which you must take your required minimum distribution (RMD) for the 2018 tax year.

An RMD is a minimum amount of money that the IRS requires you to withdraw from certain tax-advantaged accounts each year after you reach a certain age. Tax reform did not impact RMDs, but it’s still important to take your RMDs in accordance with IRS regulations because Uncle Sam generally fines folks who fail to do so.

The exact amount of an RMD is determined by an IRS formula. The federal agency offers worksheets to help you calculate RMDs.

Most types of tax-advantaged accounts are subject to RMDs. One exception is Roth IRAs, which are not subject to RMDs during the account owner’s lifetime.

3. Get a divorce

We are not encouraging divorce. But if you have already started divorce proceedings or are even considering divorce, Dec. 31 is a critical date: It can determine whether any alimony payments you may end up owing are tax-deductible.

Currently, folks who pay alimony can generally deduct those payments on their federal income taxes. That’s about to change for some taxpayers, though.

The federal tax code overhaul repealed the tax deduction for alimony payments. This change generally applies to divorce agreements and decrees signed after Dec. 31, 2018.

So, the cold, hard truth is that if you are considering divorce or entering divorce proceedings and you might be required to pay alimony post-divorce, it behooves your finances to sign off on the divorce this calendar year.

Here’s an example from the IRS’ Taxpayer Advocate Service, which has launched a website that details the recent tax code changes in relatively plain English:

“Emma pays Noah $1,500 of alimony per month based on their divorce decree signed in 2016. Emma will continue to take a deduction of the same amount in tax year 2018 and in future tax years. … Note: If Noah and Emma had divorced after 2018, Emma wouldn’t get a deduction for the alimony she paid to Noah.”

4. Donate to charity

If you wish to donate money or items to charity and write the donation off on your next tax bill, you must make the donation by Dec. 31. Just understand that you won’t necessarily get the benefit of this deduction.

Charitable donations are what the IRS considers an itemized deduction. That means you would have to itemize your tax deductions, rather than take the standard deduction, to be eligible for the charitable donation deduction.

The tax code overhaul significantly increased the size of the standard deduction starting this year. As a result, far fewer taxpayers are expected to itemize their tax deductions, as we reported this spring.

It generally only makes sense to itemize deductions if the total amount of your itemized deductions exceeds the amount of your standard deduction. But such instances will be less likely now that the standard deduction is so much larger under the revised tax code.

Are you taking any steps this year to lower your 2019 tax bill? Let us know by commenting below or on Facebook.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
These Are the 3 Best Used Cars You Can Buy

These vehicles boast reliability, safety and long-lasting value.

These Are the 10 Worst Cars for Depreciation

Two types of vehicles are especially likely to see steep plunges in value.

7 Surprising Advantages of Downsizing as a Retiree

Downsizing your home offers many benefits, including some you may not have anticipated.

How to Fix 6 Common Retirement Mistakes

Here’s how to strengthen your nest egg before or even during your golden years so these missteps don’t ruin your retirement.

The 14 Most Deadly Car Models

These vehicles are involved in fatal accidents at least twice as often as the average car.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
If You Find This Thrift Shopping, Buy It

Whether you resell it for a big profit or add it to your own wardrobe, this type of clothing is a hidden steal.

This Simple Mistake Might Weaken Your COVID-19 Vaccination

Avoid doing this before you get vaccinated.

10 Things Frugal People Never Buy

If you’re a true tightwad, the mere thought of spending money on these items gives you the willies.

7 Social Security Benefits You May Be Overlooking

There’s more to Social Security than retirement benefits.

10 Cars You Are Most Likely to Keep for 15 Years

The cars that owners hold onto the longest have one thing in common, a new study shows.

3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

The 6 Best Investing Apps for Beginners

If you’re looking to ease into investing in the coronavirus economy with just a little money, check out these easy-to-use tools.

7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

10 Deep Discounts Available on Amazon This Friday

These items are all steeply discounted — but the deals won’t last long.

14 Things You Should Stop Buying in 2021

These convenient household products come with hidden costs that you might not have considered.

9 Things You Should Never Leave in a Car

Thinking of leaving these possessions in a car? Prepare for unexpected consequences.

13 Amazon Purchases We Are Loving Right Now

These practical products make everyday life a little easier.

9 Mistakes People Make When Cleaning With Vinegar

Cleaning with vinegar can save you a lot of money, but using it like this can cost you.

8 Things You Should Replace to Improve Your Life Today

Being frugal isn’t smart if you put off replacing these items.

7 Income Tax Breaks That Retirees Often Overlook

Did you realize all these tax credits and deductions exist — or that they apply to retirees?

10 Things Successful Retirees Do Differently

These habits and characteristics can help put you on the track to success.

7 Costly Health Problems That Strike After Age 50

As we age, our bodies wear down. Here is how to cut costs associated with some common ailments.

5 Changes to Your Federal Tax Return Form in 2021

The new Form 1040 features two new tax breaks, among other changes.

29 Purchases That Can Save You Money Every Day

Sometimes, you’ve got to spend to save.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.