by Lyle Daly | April 1, 2019
Need to reduce your taxes? It's not too late.
Even though 2018 is already in the books, that doesn't mean you're out of luck if you want to reduce your taxes for last year. Whether you're trying to pay less to the IRS or score a bigger refund, here are the last-minute options to reduce your taxes.
An individual retirement account (IRA) is a personal savings account that can get you some major tax breaks as you save for retirement. After you open a traditional IRA, you can deposit money in it up to a set annual contribution limit and then deduct that contribution from your income on your tax return.
The annual IRA contribution limit is $5,500, and if you were 50 or older by the last day of the year, you can also kick in an extra $1,000 as a "catch-up" contribution. Note that only those who are younger than 70 1/2 at the end of the year can contribute to IRAs. The deadline for IRA contributions for 2018 is April 15, 2019, so there's still time to open one, fund it, and get the deduction on last year's taxes.
Don't have an IRA? You could open an account with one of the best IRA brokers and still be able to claim this deduction.
If you or your spouse already contributes to an employer-sponsored retirement plan, then whether or not you can deduct an IRA contribution will depend on your modified adjusted gross income (MAGI). Here are the income limits for each filing status:
|Filing status||MAGI Limit for Full Deduction||MAGI range for partial deduction|
|Single or head of household||$63,000||Over $63,000 but less than $73,000|
|Married filing jointly or qualifying widower||$101,000||Over $101,000 but less than $121,000|
|Married filing separately||N/A||Less than $10,000|
Source: Internal Revenue Service
The deadline for contributing to a health savings account (HSA) and deducting your contribution from your 2018 taxable income is also April 15, 2019. Assuming you were eligible for this type of plan for the entire 2018 tax year, the maximum annual contribution is $3,450 for those who are covered by individual health plans and $6,900 for families. Those amounts go up by $1,000 for anyone older than 55.
Here are the requirements to be eligible for an HSA:
Besides helping you out on your taxes, an HSA is also a fantastic way to save for retirement or future medical expenses. While high-quality bank accounts are a great place to save for medical bills, an HSA offers considerable tax benefits: Not only are contributions tax-deductible, but any withdrawals made to cover qualifying medical expenses will be free from income tax as well.
If you earned any freelance, self-employment, or business income in 2018, then you could set up one of two different types of self-employment retirement plans: a simplified employee pension (SEP) or a Savings Incentive Match Plan for Employees (SIMPLE) IRA, both of which let you deduct contributions on your 2018 tax return up until April 15, 2019.
Setting up one of these accounts is more work than a traditional IRA, and if you have a business with employees, you must also give them the opportunity to sign up. However, if you don't have any employees, an SEP or SIMPLE IRA can be a good way to make retirement contributions and get a break on your taxes.
The contribution limits for these plans are:
Often referred to as the Saver's Credit, this is a nonrefundable tax credit instead of a deduction, which means every $1 you get in credit reduces your tax liability by that same amount. It's an option if you:
For those in the lowest income brackets, you could receive a tax credit of up to $2,000 by contributing at least $4,000 to an IRA, a 401(k), or other qualified retirement account. To make it even better, many retirement account contributions that qualify you for this credit can also be used as a deduction on your taxes.
The credit amount you receive is based on your AGI and your filing status; the higher your income, the lower your credit is likely to be. You can see how much of your retirement contribution you could receive as a tax credit on the IRS's Saver's Credit page.
Many states let you deduct 529 college saving plan contributions from your income when determining your state income taxes. While the deadline for contributions is Dec. 31 in most of these, there are six that give you more time:
Iowa's deadline is April 30, 2019, and the deadline for the rest is April 15, 2019.
Taxes probably aren't anyone's favorite subject, but they're a necessary part of life in a civilized society. Fortunately, there are plenty of legal ways to pay less in taxes, and you can even use some methods long after the end of the calendar year.
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