If filing your taxes are indicative to the way you studied for exams in college, it’s highly likely you’ll be scrambling to get your taxes done at the very last minute this year. When we wait until the last minute, we often forget small yet important tax moves that can either save us money or make us money before we actually e-file or sign on the bottom line. Here are some last-minute tax moves to consider before you file.
The IRA Can Be Your Friend
So many people have small businesses or 1099 income and forget that even if they have retirement plan at work they can still contribute to a SEP-IRA plan. For 2017, the Simplified Employee Pension IRA can be used for those that have 1099 income, an LCC, or an S-Corporation. You can generally fund these up to 25% of total compensation (salary in an S-Corporation) or $54,000 for 2017 for those under the age of 50. Catch ups still apply for those at or over the age of 50.
The big one so many people forget is the Traditional Individual Retirement Account (IRA), which can offer you a 2017 tax deduction even up to the time you file here in 2017. That is because the IRS allows you to make those tax-deductible contributions for prior year all the way up to the filing deadline.
For those under the age of 50 you could make a contribution up to $5,500 and for those 50 or older in 2017 it will be up to $6,500. The big question will be whether or not you can deduct the IRA contribution. You can always make a contribution to save for retirement, just a question on whether or not you can deduct it.
For families who have eligibility to participate in a workplace retirement plan (401(k), 403(b), etc.) and made more than $119,000 adjusted gross income you will not be able to deduct the contribution. If you made between $99,000 and $119,000 you will be eligible for a partial deduction, and if you made less than $99,000 you can fully deduct the contribution. For single filers, the phase-out is between $62,000 and $72,000. Now, remember if you and your spouse had NO eligibility to qualified retirement plan at work, you can both fully deduct your contributions.
The Spousal IRA
Generally, individuals who are unemployed are not allowed to contribute to retirement accounts such as IRAs because they do not have eligible compensation. However, there is an exception for individuals with spouses who are employed and meet certain requirements. The employed spouse is allowed to make an IRA contribution on behalf of a non-working spouse or a spouse who has little income. These contributions are referred to as “spousal IRA contributions.” Here we review the requirements for making spousal IRA contributions. *source: Investopedia
In order to qualify for the spousal IRA, you must be married, file a joint return, and have earned compensation enough to fund the spousal IRA. The contributions limits remain the same as regular IRA with $5,500 being the max for those under the age of 50 and $6,500 being the max for those 50 or older.
Here’s the catch: You can deduct your full contribution to a spousal IRA in 2017 if you as a couple have an adjusted gross income (AGI) of $186,000 or less. You can deduct some portion of your contribution if your AGI is between $186,000 and $196,000 in 2017.
Last Minute Tax Deductions
2018 is going to present a whole new set of circumstances when you file in 2019 with the new tax law changes, so 2017 represents the last year for now that you could take advantage of certain tax deductions. Others will still be available, but it’s important you dig up every opportunity to maximize last minute tax deductions.
- Did you value correctly all of your non-cash charitable contributions and do you have your receipts?
- Did you account for all of your cash charitable contributions and mileage?
- What about your mileage from work that you were not reimbursed?
- Did you have business expenses you weren’t reimbursed at work as well?
- Does your state have any personal property tax or birthday taxes?
- Did you compare your state income tax vs. sales tax you paid during the year?
The point on this exercise is to get every possible last deduction you can get before you send your returns in to the IRS.
If You Owe, You Need To Pay
Just remember, that it is so important to file your return and pay if owe. Recently, I had four people I came across who hadn’t filed in multiple years. By not filing, you could be subject to failure to file penalties but more importantly if you owe money the clock starts ticking with penalties and interest. This is always a bad scenario and it’s better to face the music now versus later.
Remember as a final note that there are many types of tax credits available generally to lower income filers. These include the Earned Income Tax Credits, Retirement Savings Contribution Credits, and The American Opportunity Tax Credit all which can help you further reduce your taxes on a dollar for dollar basis.
If you want to set up a time to review your last three years tax returns, please go to oXYGen Financial to set up an appointment.