Preparing for Your 2019 Tax Return
2019 is coming to a close, and now is a good time to do a check on your tax situation for April 2020 while there is time to make adjustments. Let’s discuss some of these options; however, before you do implement any of them, it would make sense to discuss with your tax preparer.
The easiest ways to make sure you do not owe in 2020 is to look at your withholdings and see what your total taxes (federal and state respectively) due were last year. Check how many pay periods you have left, average your wages and withholdings, and with some napkin math, you should be able to see if you need to increase your withholding or if you are alright leaving it where it was.
Pre-tax retirement plans are a good way to plan for the future and pay less in taxes right now. If your company offers a form of retirement plan, and you are not contributing or can afford to put more aside, you can lower the amount of income that will be taxed by putting more into the plan. If there is a matching portion, make sure to put in enough to receive that match at the least. It is essentially free money.
Health Savings Account
A health savings account is a great vehicle for medical AND retirement if you are eligible. For 2019, you can contribute $3,500 (if you have single only coverage, $7,000 for family coverage) and have that as a deduction on your tax return. To take it as a deduction, it cannot have been deducted pre-tax via your payroll. To be eligible for an HSA, you must have a high deductible insurance plan. Make sure to consult with your insurance to check your eligibility.
Indiana 529 Plan
Contributing to an Indiana 529 is an option to save money on taxes, though it only affects the Indiana return. For every $1,000 contributed, you get a credit of 20%. The cap is reached at $5,000, for a maximum credit of $1,000. A 529 plan is a fund set up to help with future education expenses. Previously it could only be used for higher education, but was changed in the past year to apply to K-12 qualifying education expenses as well. As long as the money is used to pay for qualifying education expenses, the entire distribution is tax-free for college and up to $10,000 for K-12.
Indiana Scholarship Granting Organizations
If you contribute to an Indiana scholarship-granting organization, Indiana will let you take 50% of that contribution as a credit. There is no limit on the amount donated or the credit amount at the taxpayer level. However, Indiana does have designated funds for this credit, and once it runs out, they will no longer grant it. This is handled on a first-come, first-serve basis.