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Are you closing out 2018 and realizing that your taxes are still too high? It’s not too late! There is still time to make a few last-minute moves to lower that tax bill. Here is a shortlist of topics designers should take note of in order to ease their tax woes!
Penalties stink! Don’t forget to make estimated tax payments.
One of the most common faux pas new independent designers make is that they often get so busy building a great business that they forget about paying taxes throughout the year. As most designers know all too well in their second year, taxes are part of the profit and just because taxes are not being withheld during the year, does not make them exempt from paying taxes on their self-employment income throughout the year. Whether you are an individual or business owner, if you expect to owe more than $1,000 in taxes for any given year, you need to be making quarterly estimated tax payments. April is not the only deadline where people must pay taxes! Next quarterly estimated tax payment deadline is January 15th, 2019.
Check out this Turbo Tax calculator that will help calculate estimated tax payments in two minutes! The reward received by completing this task well outweighs the tiny hassle of having to get it done.
Start a “business”.
Get out there on your own and design awesome stuff! Under the new tax reform laws, there are a bunch of deductions that may no longer be able to write off on Schedule A’ (the form that is used by taxpayers to report itemized deductions, which can help reduce an individual’s federal tax liability). Many items, including home office, are no longer deductible on Schedule A’ so get the proper licensing and declare yourself a business. Schedule C’ (the form to report income or (loss) from a business you operated or a profession you practiced as a sole proprietor) offers more deduction options for business owners.
Win big in Vegas this year? Dig up all those losses too…
Gambling losses are tax-deductible, but only to the extent of your winnings. You would have to claim money that you won as income, but you can also deduct some of those losses! By remembering to deduct your losses against your winnings, you could in turn lower your tax bill.
Health Savings Account
Too much stress and too many doctor bills? Get an HSA to pay for that. HSA is a tax-advantaged medical savings account available to taxpayers to pay for qualified medical expenses. There is still time to open an HSA account and contribute. You can contribute pre-tax income in an HSA for use specifically on health spending (including dental). The deadline to open and contribute is April 15th, 2019 which will offer you a tax benefit for 2018.
Do you always plan to start a college fund but never follow through? Why wait?
Setup a 529 plan for your youngsters today! It will feel good to have that perpetual ‘to-do’ off your list, and when it’s time to divide up all that money you made as a rock-star designer, the account will be there so that you can easily make a contribution at any time. Having the account open will feel great and there are also a few credit card companies, like Fidelity, that will link credit card points to your 529. Instead of always racking up miles rack for travel, stack up some funds for our future generation. Put that private school tuition on that card and finally get something back from that school you pay too much for. While the deadline for 2018 529 contributions has closed in most states, here are a few states that have extended the deadline so that you can still contribute for 2018: Georgia, Iowa, Mississippi, Oklahoma, South Carolina, and Wisconsin.
And last, but definitely not least, The IRA
The most common deduction adjustment made during this time of year is to retirement plans. People sometimes have the tendency to wait until the year’s closing to figure out how much they should contribute. The two most common types of IRA are the Traditional and the Roth. If you are not sure which is the right option for you, talk to your tax preparer or financial advisor today. Generally speaking, if cash allows, we almost always advise that people max out their contributions every year. You can make 2018 IRA contributions until April 15, 2019.