3 Ways to Reduce Your Taxes Before April 15th
April 3, 2019 | Chris Sislo
April 15th is less than two weeks weeks away, but there is still time to take action before the deadline. Here are 3 easy ways to reduce your taxes.
1) Max out your HSA
- A health savings account (HSA) is an account used to pay for qualifying medical expenses. Maxing out an HSA contribution is often the most overlooked, but one of the easiest ways to reduce your taxes. HSAs have a triple tax benefit: a) contributions are tax deductible, b) earnings (if you chose to invest the account) grow tax deferred, c) distributions are tax free if used to pay for qualifying medical expenses.
- You must be covered by a high deductible health plan (HDHP) to be eligible to open an HSA.
- The contribution limit for 2018 is $3,450 for self-coverage, and $6,900 for family coverage. If you’re 55 or older, an additional $1,000 catch-up contribution is permitted.
- It’s important to remember the contribution limit is a combination of your contributions, as well as your employer’s contributions to your account. The employer contribution amount is reported on your W2, box 12, code W.
- HSAs are not a “use it or lose it” account like an FSA (flexible spending account). An HSA is yours forever.
- You can open an HSA at your bank or through an HSA administrator like Health Equity, Optum, Fidelity, etc.
2) Contribute to your SEP
- A simplified employee pension (SEP IRA) is a type of business retirement savings account often used by self-employed individuals.
- A self-employed individual can contribute up to 20% of net self-employment income to a SEP. The max contribution for 2018 is $55,000 ($61,000 if 50 or older).
- If you do not have employees, tax planning with an SEP is pretty straight forward. If you have employees, implementing and planning with a SEP at this time of year may be cumbersome and tricky. It can be done and may prove to be beneficial for you as the owner, but there are nuances you need to be aware of.
3) Contribute to your IRAs
- Traditional individual retirement account (IRA) contributions can be considered pre-tax and may reduce your taxable income. But if you get a tax deduction now for the contribution, you will pay income tax on all distributions in retirement.
- Anyone with earned income and under age 70 ½ can contribute to a traditional IRA. Whether or not you can deduct the contribution is determined by your personal situation.
- Determine your eligibility for an IRA deduction:
- If you are ineligible to take a deduction for an IRA contribution, or if you prefer to pay the taxes now, consider contributing to a Roth IRA. Roth’s are made with “after-tax” contributions and will not reduce your current tax liability. However, ALL distributions after age 59 ½ are tax free. Check to see if you are eligible to contribute directly to a Roth here.
- The 2018 maximum IRA contribution is $5,500 per person ($6,500 if 50 or older at the end of 2018). Remember, this is per person. So a husband and a wife could each contribute that amount.
All of the accounts listed above can be established up to the 2018 tax filing deadline – April 15th, 2019. You have until April 15th to open an account and make your contributions. However, make sure you label your contribution as a 2018 contribution.
This article is contributed by HHM Wealth Advisors, LLC, an RPAG member firm. Visit www.HHMWealth.com or www.rpag.com. Neither HHM Wealth nor RPAG are in the business of providing legal advice with respect to ERISA or any other applicable law. The materials and information do not constitute, and should not be relied upon as, legal advice. The materials are general in nature and intended for informational purposes only.