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3 Smart Tax Moves After You File Your 2017 Tax Return

Now's the time to take steps for 2018 due to the new tax law


Relieved that you won’t have to think about taxes for another year now that you’ve finally submitted your 2017 return or will soon? It’s best not to put taxes on the back burner yet. Instead, take advantage of being in tax mode to make a few moves that can help with next year’s return and improve your finances overall.

That’s nearly always a good idea, but it’s especially timely now, given major changes in the 2017 tax law that could impact what you owe for 2018 and new tools to help with the process.

“Nearly every American will be affected in some way by the new law and some provisions will affect older taxpayers more than others,” says Lisa Greene-Lewis, a CPA with TurboTax.

Here are three smart moves to make before closing the books on taxes this year:

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1. Save Your Tax Refund for Retirement

Filing season presents a perfect opportunity to pad your nest egg in the home stretch toward retirement if you’re among the roughly three-quarters of taxpayers who typically get a tax refund.

Chances are, it will be a significant sum. Older taxpayers typically get more money back from the Internal Revenue Service (IRS) than the average $2,900 refund. In 2016, the typical refund for taxpayers ages 45 to 64 was around $4,300. That’s enough to fund about two-thirds of the maximum $6,500 Individual Retirement Account (IRA) contribution allowed this year for savers 50 and older, if you qualify.

You can contribute to a traditional IRA as long as you or your spouse have earned income equal to the amount you’re putting into the account and won’t turn 70 ½ in the calendar year — even if you save in a 401(k) or similar retirement plan at work. If you contribute to an employer-sponsored retirement plan, your IRA contribution won’t be deductible, but the earnings will still grow tax-deferred.

Haven’t finished your 2017 taxes yet? The upside to procrastination is that you can still take the easy route to saving your refund: direct deposit. If you’ll qualify for a 2018 IRA, have the IRS send the entire sum to an IRA at a bank, brokerage or other financial institution. Or, if you want to keep a portion, split the refund between an IRA and one or two other accounts via Form 8888.

If you’ve already filed your ’17 return but haven’t gotten your refund yet, you can simply shift the cash you receive to an IRA when it hits your bank account or mailbox.

To ensure you’ll actually follow through putting some or all of your refund into a savings account earmarked for retirement, you can automate the process with the free saving app Qapital. Designed in partnership with behavioral economist Dan Ariely, Qapital lets you name a savings goal and then apply “rules” to help you get there, using funds from a linked bank account. In this case, the goal would be “fund an IRA” and the rule might be “send 50 percent of any deposit I get above $Y” (with “Y” being an amount slightly less than your refund) to my designated IRA savings account. Then you can transfer the money to your outside IRA at any time.

As in the IRA example, you can customize the goal and rules to help you save more for big objectives like retirement or use one of the app’s quirkier preset rules to trigger small incremental savings every time you, say, go for a workout, spend a certain amount at the supermarket or indulge in a guilty pleasure (iced cinnamon almond milk macchiato, anyone?)

“The idea is to make saving as easy as possible and sometimes even fun,” says Qapital CEO and co-founder George Friedman.

Worth noting: Qapital will begin offering its own IRAs later this year, with recommended portfolios of low-cost exchange-traded funds (ETFs), based on your age and risk profile.

2. Simplify Your Freelance Life

More boomers and Gen Xers work in the gig economy than other generations, according to a recent T. Rowe Price study. That means they’re also more likely to have the tax hassles that go along with earning freelance income, such as the complicated calculations to figure out how much you owe Uncle Sam and the annoyance of paying quarterly estimated taxes.

Now there’s an app to automate the tax process — a couple, in fact.

Track.Tax is a soup-to-nuts offering. You link your bank account to the service during the app setup and Track.Tax scans for deposits that appear to be non-salaried employment income. It then estimates how much you’ll owe in taxes and automatically transfers the required amount to a dedicated savings account at its banking partner, Evolve Bank.

If you want, Track.Tax will even submit your estimated quarterly payments for you, once you’ve approved the amounts.

Cost: $10 a month after a free 30-day trial; AARP members can get tax calculations and withholding for free here, but need to pay $30 per quarter if they also want tax submission to the IRS and state tax authority.

“The goal is to make the experience as much like being a regular employee as possible,” says CEO and co-founder Trent Bigelow.

One caveat: The app’s identification of which deposits to your bank account are freelance income, powered by machine learning, are about 80 percent accurate but learn over time as you train it, Bigelow says. Users get an email notice about each transaction, then need to check and manually correct inaccuracies (it just takes a single tap on the amount to re-tag it).

Qapital offers another automated option, sans the tax-filing service. Its freelancer rule shifts 30 percent of every deposit over $100 to whatever bank accounts you’ve linked into a savings account earmarked for tax payments. You can adjust the default settings so they more accurately reflect a typical freelance payment for you.

3. Do a Paycheck Checkup

If you’re a salaried employee, you’ve probably noticed a little bump in your take-home pay since January, courtesy of last year’s tax law. The average paycheck has increased by 1 to 3 percent in 2018, says TurboTax’s Greene-Lewis. Better check the teeth on that gift horse before pocketing your newfound bounty, though.

“Everyone should revisit their W-4 to make sure the right amount is being withheld,” says Lewis-Greene. “Otherwise, you face a greater-than-usual risk of owing money to the IRS next year.”

You may see more tax liability for tax year 2018 if you itemized deductions for 2017 and you pay steep property taxes or live in a high income-tax state such as New York or California. That’s because the new law limits the value of those write-offs by capping the deduction for state and local income tax withholding, property and sales taxes at $10,000. In addition, because the new law nearly doubles the standard deduction to $24,000 for married couples filing jointly and $12,000 for singles, you may now have to take the standard deduction if your itemized deductions for deductible expenses like home mortgage interest, property taxes and state income tax withholding are not more than the new standard deduction amount.

So, unless the total value of your charitable contributions, local taxes, mortgage interest and other write-offs exceeds those sharply higher standard deduction limits, they will no longer help to lower your taxable income, which might mean you need to have more taxes withheld.

Other situations that increase the likelihood your withholding may be out of whack: if you’ll pay the alternative minimum tax, earn freelance income or have capital gains and dividend income in 2018.

To estimate the right amount to withhold from your paycheck, use the IRS withholding calculator or the ones at tax-prep sites such as TurboTax and H&R Block.

If you do need to make an adjustment, fill out a new W-4 form with your employer. That’s at least one thing that hasn’t changed since last year and doesn’t require an app to figure out.

By Diane Harris
Diane Harris is an award-winning financial journalist and financial wellness advocate. She is the former editor-in-chief of Money magazine, the first woman to hold the top job, and covered virtually every aspect of personal finance during her 22 years there. She is writing a book on financial wellness and launching a related coaching and consulting business. Follow her on Twitter @dianeharris.

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