In general, most tax planning strategies focus on actions a taxpayer can take before year-end to lower their overall tax bill for that year. Unfortunately, if you are reading this article, the year-end deadline has already passed for 2018. Fortunately, however, there are still a few tax planning strategies that you can employ now in 2019 to help lower your 2018 tax bill this coming April.
IRA Account Funding
If you haven’t already maximized your IRA contributions for 2018, you still have time. The deadline for making a Traditional IRA contribution for a given tax year is the original due date of the tax return for that year, which is April 15th. Extensions of time to file your individual tax return do not extend the time to make Traditional IRA contributions. For SEP IRA’s, the deadline for making a contribution is the original due date of the tax return for that year, plus extension. For Traditional and SEP IRA’s, you can even file your tax return and claim the deduction for the contribution, if allowed, before you make the actual contribution, as long as the contribution is made by the contribution deadline. That means for 2018 taxes, you have until April 15, 2019 in order to make the contribution for a traditional IRA or October 15, 2019 for a SEP IRA. If you make a prior year contribution in the following year by the tax deadline, it is important to ensure the contribution is classified as a prior year contribution – your IRA custodian should be able to assist with that. While Roth IRA’s do not provide a tax deduction, contributions to a Roth IRA also follow the same deadline as Traditional IRA’s follow. Please be aware that there are specific income and contribution limitations based on the type of IRA plan to which you are planning to contribute. Before making any IRA contribution, it is important to discuss the specifics with your tax professional first to make sure you do not run afoul of any limitations.
Health Savings Accounts
If you have a high deductible health insurance plan and are eligible to contribute to a Health Savings Account (HSA), you may also have time to contribute additional funds to your HSA for 2018 if you haven’t already maximized your 2018 contributions. Like IRA contributions, you have until the original due date of the tax return for that given year in order to make the contributions. For 2018 taxes, you have until April 15, 2019 in order to make the contribution. In addition, the contribution would need to be made outside of any regular payroll deductions, meaning you will have to make a direct contribution to an HSA account either via check or transfer from your bank account. For 2018 and 2019, the HSA contribution limits are $6,900 or $7,000 respectively. Taxpayers over age 55 by the end of the year are also eligible to contribution an additional $1,000 to their HSA. Unlike IRA’s, HSA contributions are not subject to specific income limitations.
While your tax planning strategies are generally limited after the end of the year, these are a few potential options you might be able to employ to help lower you tax burden. If you have questions regarding these strategies or would like to discuss other potential tax strategies or questions, please contact our offices and we would be happy to discuss them further with you.
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About the Author
Derek McCarty began his career in accounting with Yount, Hyde & Barbour in 2011 after a graduating with a B.S. in accounting from Shepherd University. Derek became a licensed CPA in 2013. As a member of the firm’s Family Legacy Services team, Derek has developed an in-depth understanding of individual, trust, estate and business taxation. Derek stays up-to-date with the latest trends and regulations, regularly attending courses specifically designed towards matters affecting his clients. Derek also assists with providing tax training and ongoing mentoring to YHB staff members.