While some of us get excited for a long-awaited tax refund, many stress over getting their taxes filed correctly and paid on time. The passage of the Tax Cuts and Jobs Act in December 2017 into law means that upcoming tax seasons may be all the more stressful as people struggle to make sense of the changes to the existing tax code.
With this in mind, let's discuss four tax strategies that could help you save money on your tax bills in 2018.
1. Invest in your retirement plan. This may sound obvious, but it is a great way to save and make a real difference at the end of the year. These type of retirement savings incentives were unaffected by the Tax Cuts and Jobs Act. As an example, investors in the new 24 percent federal tax bracket who contribute $10,000 to a qualified plan such as a 401(k) will reduce their income by the same amount, regardless of how much they make. You can elect to have the contribution taken directly from your paycheck.
For those who do not have a retirement plan with their employer, a personal retirement plan can provide the same tax benefits. You can contribute automatically from a personal account, making the contributions automatic just as in a 401(k). If you have an individual retirement account and haven't yet maxed out contributions for 2017, you are able to make prior year contributions until April 18, 2018.
2. Donate to charity. Even though the new law increases the standard deduction and eliminates income phase-outs, the charitable rules still apply. Individuals can donate or gift up to 50 percent of their adjusted gross income in the form of cash (or property) at fair market value and receive a deduction each year.
More complex gifting strategies for the right investor can provide great opportunities without stock market participation. Track donations and gifts you make throughout the year to document and confirm you are able to deduct these donations. These strategies may be beneficial for all individuals, such as those who are planning for college or retirement and those who are already retired.