4 Smart Year-End Tax TipsNovember 14, 2018
- With new tax rates in effect, you may want to double-check your tax withholding and put any extra money in your paycheck to good use.
- Consider whether to itemize or take the new, higher standard deduction.
- Lower marginal income tax brackets may make it worthwhile to explore a Roth IRA.
Tax reform legislation that went into effect in 2018 may have impacted your finances. Year-end is an ideal time to assess your overall strategy to both prepare for tax season and potentially boost your bottom line. Here are four steps to take now:
1. Revisit your tax withholding
Did you receive a tax refund this past year? Double-check your tax withholding and submit a new Form W-4 to your employer if you decide you'd rather take home more money throughout the year. The Internal Revenue Service offers a Withholding Calculator to perform a "paycheck checkup." Have your pay stub and most recent tax return handy.
2. Examine your paycheck
You may have noticed a little more money in your paycheck. View your pay stub from last year and compare it with a current one. If you are taking home more money, you can use it to pay down credit card debt, add it to your rainy day fund, or put it toward your savings goals. You also could consider increasing your contribution to your 401(k) plan or fully contribute to an IRA.
3. Consider a standard deduction
The legislation nearly doubled the standard deduction for individuals ($12,000) and married couples filing jointly ($24,000). So you may benefit from taking the standard deduction rather than itemizing. To see how you might be affected, consult the Tax Foundation’s 2018 Tax Reform Calculator.
4. Explore Roth options
Since marginal income tax brackets are lower for many people, it may be time to consider Roth retirement accounts. If you’re in a lower tax bracket now and expect to be in a higher tax bracket in retirement, then making pretax contributions today may not be as meaningful as getting tax-free income in the future through a Roth account. A Roth IRA has income limits, so you may not be eligible to contribute if you meet or exceed certain income thresholds.
- Visit T. Rowe Price's Tax Planning Center.