Tax Day Is Over, Now What?

By Ben Dunbar, CFP®

Taxes for 2018 were one for the history books. The Tax Cuts and Job Act created a massive overhaul in the tax code. Overall, individual tax rates went down, and most Americans paid less in taxes. As of April 5, the IRS paid $220.7 Billion in refunds, which is down by $6 Billion from last year. California refunds specifically were down 1.6%. In many cases, the total tax owed went down, but people didn’t withhold enough, and a lot of payrolls did not correctly adjust with the tax law change. Now that 2018 is in the books, here are some ideas to plan for 2019.

Check your exemptions. Exemptions are claimed on your form 1040 and reduce your taxable income (and therefore your income tax). You are allowed one exemption for yourself, one for your spouse and one for each dependent. Claiming more exemptions than you have will increase your paychecks but could lead to a tax bill at the end.

Get ahead on your 401k (or other retirement plans). The maximum you can contribute to a 401k for 2019 has increased to $19,000 ($25,000 if you are over 50). Everything you contribute to a traditional 401k will reduce your income, hence save you money on taxes now. Ultimately, you’ll pay taxes when you take the money out. You can also consider a Roth 401k, a relatively new vehicle that allows your money to grow tax-free for retirement.

Consider a donor-advised fund if you are charitable. The new tax law reduced the number of people who itemize deductions. With a donor-advised fund, you can take the deduction now and choose who you’ll donate the assets to later. You could put 3 years of your planned charitable giving in the donor-advised fund now, take the deduction and donate over the next 3+ years.

Talk to your CPA. Maybe wait until May to give them some breathing room. The new tax laws changed many people’s tax situations, and it was a tough year for accountants. It is better to get out and front and make sure you fully utilize all your opportunities available to you. It is always a great idea to bring in a team to help you do this. This includes your CPA, your financial advisor, and any others that are part of your team.

This past tax year was filled with a lot of uncertainties and changes. By planning out the year in advance, you can help avoid any surprises come tax time in 2020.

Ben Dunbar is a Financial Advisor of Santa Monica, Calif-based Gerber Kawasaki Inc., an SEC-registered investment firm with approximately $840 million in assets under management as of 3/31/19. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which course of action may be appropriate for you, consult your financial advisor. No strategy assures the success or protects against loss. Readers shouldn’t buy any investment without doing their own research to determine if the investments are suitable for their situation. “All investments involve risk and one should consult a financial advisor before making any investments. Past performance is not indicative of future results.”