1. Double-check your paycheck to make sure your withholdings are correct.

If you’re not having enough tax withheld from your paycheck, you will owe Uncle Sam at tax time. If too much tax is being withheld, you’ll get a refund — but maybe you’d rather have that money in your pocket every week.

 

Are you sure the correct amount of tax is being withheld from your paycheck? Use the IRS’ tax withholding estimator to do a checkup on your paycheck and adjust your withholding for 2020, if necessary.

 

2. Decide who will prepare and file your taxes.

Just don’t wait until the calendar flips to April to make that decision because it could end up costing you.

The average fee in 2018-2019 for a professional to prepare and file an itemized Form 1040 with Schedule C (for sole proprietors of a business) and a state tax return was a hefty $481, according to the National Society of Accountants.

 

3. Make sure beneficiary designations are up to date.

Beneficiary designations won’t affect your taxes now, but they do affect the taxes of your heirs in the future.

Why is that important? Down the road, it will help minimize the taxes your beneficiaries and heirs pay on your assets after you die.

 

4. Max out retirement plan contributions.

If you’ve been stingy about funding your employer-sponsored 401(k), 403(b) or other tax-deferred retirement account, do yourself a favor and increase your contributions. The money you put in these accounts reduces your taxable income for the year, which reduces your tax bill. It isn’t taxed until you withdraw it.

 

For 2019, contribution limits are $19,000, plus $6,000 in catch-up contributions if you’re 50 or older. For 2020, limits are increased to $19,500 and $6,500 in catch-up contributions.

 

If you have an IRA through a broker or bank, contribution limits for 2019 and 2020 are $6,000 plus $1,000 in catch-up contributions.

 

5. Shield yourself from tax scams and fraud.

As tax season approaches, many people start getting phone calls, emails and text messages from entities claiming to be the IRS. “The most important thing right now is do not respond to telephone calls or emails from folks who pretend to be the IRS or the U.S. Treasury,” Lipman says. “Those organizations are never going to call you on the phone.”

 

U.S. mail is the only way the IRS will correspond with you.

 

She also warns against “shopping a refund” to find a preparer who promises to get you a bigger refund. The tax preparer who makes promises like that could be unscrupulous and lead you into deep trouble.

 

6. Consider “bunching” deductions.

The standard deductions are nearly double what they used to be, making it hard to itemize. The 2019 deductions are: $12,200 for individuals, $18,350 for heads of household, and $24,400 for married couples filing jointly. Taxpayers who don’t have enough deductions to surpass those thresholds take their standard deduction.

 

Bunching is when you time expenses by pushing deductible expenses into the same calendar year. This can be achieved by moving forward certain deductions this year, such as charity donations, or prepaying January’s mortgage payment.

 

7. Take your required minimum distributions.

If you are 70 ½ years old and have enjoyed watching your 401(k) or IRA grow tax-free without touching it, the IRS now wants its share. You must take your required minimum distribution, or RMD, by Dec. 31, or you will be penalized 50 percent of the RMD amount.

 

The amount of your RMDs is based on your age and the year-end values of your retirement accounts. Moyer recommends account holders work with a professional to ensure they are taking the correct distribution amount.

 

8. Convert IRA to a Roth.

A Roth IRA has two big tax advantages over a traditional IRA: Withdrawals are not considered income for federal (and usually state) income tax purposes, and you do not have to take RMDs from them every year starting at age 70 1/2.

 

Just know that when you convert an IRA to a Roth IRA, it is considered taxable income, which will raise your tax bill for that year.

 

9. Don’t ignore the IRS!

Taxpayers who don’t file returns and owe taxes, or who file but don’t pay taxes on time are risking serious penalties. The IRS can seize assets if necessary.

 

If the IRS has been sending you letters because it found an error on your return or claims you owe back taxes, respond in writing — and don’t delay!

 

Make copies of your correspondence and use only the U.S. Postal Service, whose postmark is your proof of timeliness.