---
title: Why do I Owe So Much in Taxes? How Can I Reduce My Liability Today?
description: Even though taxes can be very complicated, there are a few planning opportunities we recommend that everyone take into account.
image: https://blog.birchwoodfp.com/hubfs/AdobeStock_91644659-1.jpeg
---
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# Why do I Owe So Much in Taxes? How Can I Reduce My Liability Today?
[Damian Winther, CFP® CSRIC®](https://blog.birchwoodfp.com/author/damian-winther-cfp)
Jun 12, 2019 6:07:00 AM
****Regardless of your wealth, the April 15th tax filing deadline was likely a major thorn in your side, it may have lead to stress, lack of sleep and possibly the need to write an unexpected check to the Internal Revenue Service.
The Tax Cuts and Jobs Act (TCJA) went into effect starting with the 2018 tax year and created a great deal of anxiety within the accounting profession as well as with individual filers. With any tax law change, there are bound to be questions and lots of uncertainty. Our general sense is that the 2018 tax filing created very noticeable differences for our clients – both good and bad.
Not only did tax rates change with the TCJA, but itemized deductions also changed for many taxpayers. While the tax code is vast and incredibly complicated, there are a few planning opportunities we recommend that everyone take into account in order to better understand their situation and to help minimize Uncle Sam’s share of the pie.
## **Estimated Payments**
If you have a size-able amount of money in non-retirement accounts, chances are you are generating dividends, interest and capital gains each year. This is all considered income and needs to be taken into account when calculating your tax liability. Check with your accountant to see if you should be making estimated payments in order to reduce the amount of money you have to pay in April and/or to avoid underpayment penalties.
## **Time to Pay Off the Mortgage?**
If you will no longer be itemizing your deductions and happen to be sitting on a decent amount of cash, consider paying off your mortgage. For most taxpayers, the biggest reason they decide to hang onto their mortgage is because they have historically been able to deduct the interest paid on the loan. With the TCJA, itemized deductions were significantly impacted and in order to itemize going forward, the total of state and local taxes (now capped at $10,000 per year), medical expenses, charitable contributions and mortgage interest, must exceed the new $24,400 standard deduction in 2019 ($12,200 if filing single). With this hurdle being harder to overcome, paying off the mortgage may make more sense now than it has prior years.
## **Required Minimum Distribution (RMD) to Charity**
If you are over age 70½ and are [charitably motivated](https://blog.birchwoodfp.com/charitable-gifts), consider having a portion of your RMD [paid directly to charity](https://blog.birchwoodfp.com/charitable-contributions-in-retirement). This strategy is known as a Qualified Charitable Distribution (QCD). The donated amount is not considered part of your Adjusted Gross Income or Taxable Income and as such, may lead to a reduction in your future Medicare Part B and D premiums.
## **Maximizing Pre-Tax Deductions**
There are several ways in which you can shelter income today and shift the taxation to future years (or defer taxation all-together if distributions are used for specific purposes). Consider the following:
- **401k Contributions** – If you aren’t taking advantage of your workplace 401k plan, consider doing so. Most employers make matching contributions so do everything you can in order to contribute whatever is needed in order to get the full match. The contribution limit in 2019 for elective deferrals into 401k plans is $19,000 (or $25,000 if over age 50).
- **Deductible IRA contributions** – If your income is below certain thresholds, consider making a pre-tax contribution to an [Individual Retirement Account (IRA)](https://blog.birchwoodfp.com/determine-if-roth-conversions-are-a-smart-strategy-for-you). You avoid paying tax on this money today, but you will owe ordinary income tax when distributions are taken during your retirement years. [The contribution limit in 2019 is $6,000 (or $7,000 if you are over age 50).](https://blog.birchwoodfp.com/backdoor-roth-ira-strategies)
- **Health Savings Accounts** – If you are covered by a high deductible health care plan and have access to a Health Savings Account (HSA), consider making contributions which will reduce your taxable income today. Distributions that are taken from the HSA for qualified medical expenses are tax-free. With the [rising costs of health care](https://blog.birchwoodfp.com/early-retirement-health-insurance-costs), this is a great way to set aside money for future medical expenses. Furthermore, if you know you are going to have significant medical expenses in a given year, consider making the HSA contribution and then pay yourself back immediately (i.e. you pay the same amount for medical services either way, but you get the tax deduction today).
As financial advisors, these are just a few of the ways in which we work with our clients to help alleviate the stress that comes along with tax season. While situations are unique and there isn’t a one-size fits all approach to every scenario, we do believe careful planning should be conducted to help design a plan that meets our clients needs. We encourage you to consult your tax advisors before taking any action.
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Topics: [Taxes](https://blog.birchwoodfp.com/topic/taxes)
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