11th-hour tax tips for individuals
With the April 18 tax deadline fast approaching, it's essential to assess your tax situation and evaluate potential tax savings areas. The time has come and gone for traditional strategies to reduce tax: It’s too late to contribute to charity, to pay property taxes early or to purchase that computer for your business.
All is not lost, however. The following are a few 11th-our tips to reduce your 2015 taxes:
- Fund an IRA by April 18: While it is too late to make extra deposits into your 401(k), it’s not too late to invest into individual retirement accounts. Contributing to a traditional IRA is a tax-smart way to reduce your current year tax liability and increase your long-term retirement savings. You have two IRA options: traditional IRAs and Roth IRAs. Traditional IRAs allow for current tax deductions if certain income requirements are met. Additionally, traditional IRA earnings are tax-deferred up until the point of withdrawal. The maximum yearly contribution amount per person is $5,500 for taxpayers under 50, and $6,500 per person over 50.
On the other hand, Roth IRA contributions are funded with post-tax dollars; so there is no tax deduction. However, earnings grow tax-free and qualified withdrawals are also tax-free. The maximum annual contribution limitations are the same for both traditional and Roth IRAs.
- Contribute to an HSA by April 18: Not many taxpayers generate enough medical expenses to get a tax deduction (That’s likely a good thing!). However, owners of Health Savings Accounts get a deduction for contributions made into an HSA. HSAs are used in conjunction with a high-deductible health plan and can be a tax-efficient way to save and pay for current and future qualified medical expenses. Employers and employees can contribute to an HSA and the balance is yours — it rolls over from year-to year.
HSAs feature three tax benefits: pre-tax or tax-deductible contributions; tax-free growth and earnings; and tax-free qualified withdrawals. This is a true tax trifecta! If you have a high-deductible plan, consider funding the maximum amount allowed by April 18. The 2015 maximum contribution amounts for taxpayers under 55 are $3,350 for individual plans and $6,650 for family plans. Add an extra $1,000 for each plan for taxpayers over 55.
There you have it. Now hurry up and talk to your tax advisor or financial advisor. You have less than three weeks to make this happen. Do what you still can to reduce your 2015 tax liability!