5 Last Minute Tax Tips
It’s that time of year again where people are getting all their documents together to file their taxes! If this excites you, you must be a retired CPA or an IRS Agent. Whether you have someone doing your taxes for you or you are doing them on your own, these tips may help you save money on your taxes.
The official U.S. Tax Code is over 70,000 pages long and gets a bit thicker and more complicated every year. It’s no wonder H&R Block claims Americans overpay their taxes by over $1 Billion every year. Just to be clear, if you have money in an account that is above and beyond your emergency needs, and you are eligible, you may be able to move the money according to one of the strategies outlined below and save money on your taxes.
Because each of these will have various rules and guidelines that must be followed, please remember to consult your financial or tax advisor before implementing any of these strategies. Without further ado, here are a number of ways to reduce your tax burden now and in the future:
- Traditional IRA: If you qualify, you can contribute the lesser of $5,500 ($6,500 for taxpayers over age 50) or the income you earned in 2014 by April 15th. Any taxpayer who does not participate in a qualified retirement plan at work can deduct contributions to an IRA. If you do participate in a retirement plan at work the amount you can contribute may be reduced based on what’s called modified adjusted gross income (MAGI). In 2014 that reduction begins for single taxpayers at $60,000 and is reduced down until you are over $70,000. If you’re married, that ranges $96,000 – $116,000.
- Roth IRA: To be fair, contributing to a Roth IRA will not save you any money on your 2014 taxes. I include them in this article because I believe they are one of the best savings vehicles anyone can invest in (for more on my declared love for Roth IRAs please see my previous article //www.thecreole.com/?p=20223). The benefit of the Roth IRA is that based on current tax laws, if you leave the money in for at least five years and until you’re 59 ½ all of the money in it comes out tax free. Like the traditional IRA, you can contribute the lesser of $5,500 ($6,500 for taxpayers over age 50) or the income you earned in 2014 by April 15th. However, there are no rules around whether or not you participate in a retirement plan at work. You still have income limits based on your MAGI: Between $114,000 – $129,000 for single taxpayers and $181,000 – $191,000 for married taxpayers.
- SEP IRA: If you have self-employment income, the SEP IRA is the only retirement plan you can still establish for 2014. You can make contributions to a SEP IRA up to your tax filing deadline (April 15th) plus any extensions (October 15th) you may file. Your company can contribute up to 25% or $52,000 on your behalf for 2014, whichever is lower. One thing to keep in mind is if you have employees and they are eligible for your plan, you will have to make the same percentage contribution for them as you would for yourself. Don’t let this discourage you if this seems like it may be a good idea for you as there are exceptions to this rule that you should explore.
- 401(k): For a sole proprietorship, partnership, or an LLC taxed as a sole proprietorship, the deadline for depositing contributions is generally the personal tax filing deadline (April 15th, or September 15th if an extension was filed). If you had a 401(k) plan for your business established prior to December 31, 2014, you can defer the lesser of $17,500 ($23,000 for taxpayers over age 50) or the income you earned in 2014. In addition, if your 401(k) had profit-sharing or matching provisions, you may be eligible to match up to 25% of what you contributed. If you have employees, this can get complicated and you will want to consult the administrator of your plan to make sure you are following the rules.
- Health Savings Account (HSA): If you participate in an eligible high deductible health plan (HDHP) then you may be eligible for an HSA. To qualify as a high deductible health plan, your deductible must be at least $1,250 for an individual or $2,500 for your family. Maximum out-of-pocket expenses are $6,350 for an individual and $12,700 for family. Contributions up to $3,300 (plus $1,000 if you’re over age 55) for an individual or $6,550 (plus $1,000 if you’re over age 50) for a family can be deducted from your 2014 taxes if the contributions are made by April 15th. As long as the money is spent on qualified medical expenses, distributions are tax-free. In addition, if there is money remaining in the account when you reach age 65, you can take distributions for whatever reason, and although it is taxable there is no penalty.
Additional fun facts (read: required disclosures): Limitations and restrictions may apply. Withdrawals prior to age 59 ½ from any of these accounts may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of any and all of these accounts, including their tax treatment.
If you have questions about how these strategies may work for you, please contact us at the number below and we will be happy to assist in getting the answers you are looking for. Happy Filing!
Michael Bonfanti, CFP ®
Wealth Advisor • Bonfanti Investment Services, LLC
Michael Bonfanti is a CERTIFIED FINANCIAL PLANNER ™ practitioner and owner of Bonfanti Investment Services, LLC. He focuses on individual and small business financial planning and investment management. For more information or questions, please contact him at 225-612-3984 or at firstname.lastname@example.org. Investment Advisory services are offered through Bonfanti Investment Services, LLC, a Registered Investment Advisor in the State of Louisiana. The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments and strategies may be appropriate for you, consult your financial advisor prior to investing.
This article is from The Creole.