Taxes are a matter matter, so with a new year approach, it's smart to look out for some of the pitfalls filers commonly face. Here are a few mistakes you might make at risk of making next year – and how to avoid them.
1. Neglecting your IRA or 401 (k)
IRAs and 401 (k) s can be instrumental in not only helping you save for retirement, but lowering your taxes along the way.
IRA or 401 (k) go on a pre-tax basis, and your associated Savings are a function of your effective tax rate. If that's 30%, and you contribute $ 5,000 to either type of account, you'll shave $ 1
3. Assuming you will not itemize
Now that the standard deduction is just about what it is prior to 2018, a large number of tax filers who will do so will. But do not assume that you do not want to be just because the standard deduction has gone up. If you pay a lot of mortgage interest, have high and local taxes (including property taxes), and rack financially by itemizing on your return after all, so save those receipts from doctor visits, charitable contributions, and anything else that might serve as a tax deduction for you.
. 4 Forgetting to take your RMD
The money you have in your IRA or 401 (k) can not just sit there untouched forever. Once you turn 70 1/2, you'll need to start worrying about required minimum distributions, or RMDs. The amount of your RMDs will depend on your account balance and life expectancy each year they come due, but if you fail to take them as scheduled, you'll face a 50% penalty. This means that if your RMD one year is $ 5,000 and you do not take it, you'll loose $ 2,500, just like that.
Your first RMD is due by April 1 of the calendar year after the year you turn 70 1 / 2, so if you turned or are turning 70 1/2 at any point in 2018, you'll need to take your initial RMD by April 1, 2019. Mark that date on your calendar, if it slips on by, you could be a serious chunk of money. At the same time, remember that your RMD will, unfortunately, be subject to taxes. This is not a penalty;
Falling victim to the above tax error could have been serious financial consequences. 2019.