With a little advanced planning, you can put yourself in a better position for tax season. Consider these easy tips to get started.
Contribute as much as you can to your retirement plan
If you contribute to a retirement plan, you are saving for your future.
Many employers allow you to set up automatic withdrawals from your paycheck. This means you don’t have to set aside money each month – it comes out of your paycheck before you see it.
Take advantage of other pre-tax options
You may consider contributing to a healthcare savings account or flexible spending account. Such contributions are made on a pre-tax basis and reduce your gross income.
Itemized income tax deductions
Under the new tax law, the standard deduction has changed. For most people it is higher. You should review your tax situation and determine whether the standard deduction (the one given to everyone) is more beneficial than itemizing your deductions.
Consider a donor-advised fund
If you contribute to multiple charities throughout the year and don’t want to handle the tax-deduction paperwork associated with keeping track of those gifts, a donor-advised fund (DAF) might be a good solution for you.
A DAF allows you to make a charitable contribution this year (which could be eligible for a tax deduction) but distribute funds over time to multiple charities. You only have to track gifts to the DAF, not all of the later distributions. Note that contributions to a DAF are irrevocable. Legal control over the contributed assets transfers to the DAF, but you retain advisory rights. Your TIAA advisor can tell you more about DAFs.
If your itemized deductions are less than the available standard deduction, a donor-advised fund can help you "bunch" your charitable deductions. This simply means aggregating your deductions into one year to maximize your potential itemized deductions. The result could be a lower gross income which could mean a lower tax bill.
Understand required minimum distributions
If you’re nearing retirement or approaching age 70, you’ll likely need to start withdrawing money from your retirement accounts. If so, understanding how that withdrawal affects your cash flow and your income taxes is a must, especially if you consider that failure to withdraw them correctly may result in severe tax penalties. A TIAA advisor can help you avoid penalties and see how your required minimum distribution strategy fits into your broader retirement planning.