Do you think you missed the boat on tax deductions after December 31? Think again! It’s not too late to maximize your deductions for the previous year. Below are three effective strategies you can implement before Tax Day, which typically falls on April 15th.
1. Contribute to an IRA
Did you know that you can make contributions to your Individual Retirement Account (IRA) until tax day for the previous year? This means you have a chance to lower your taxable income and perhaps secure a deduction for last year’s taxes. Bear in mind that there are income limits that may affect your ability to deduct your contributions—especially if you already contribute to a 401(k) or a 403(b).
If you're considering a Roth IRA, you won’t receive an upfront tax deduction, but the upside is that after age 59.5 your withdrawals, along with any growth in the account, will be tax-free. For high earners who might be phased out from contributing directly to a Roth IRA, the backdoor Roth strategy can be a game-changer. Stay tuned for a deeper dive into that strategy in a future post!
2. Health Savings Account (HSA) Contributions
Another powerful tool for reducing your taxable income is the Health Savings Account (HSA). Similar to traditional IRAs, you can contribute to your HSA up until Tax Day for the prior year. However, keep in mind that to contribute to an HSA, you must have a High Deductible Health Plan (HDHP).
The contributions you make to your HSA are tax-deductible, and you can use the funds tax-free for qualified medical expenses. Additionally, certain HSA plans allow you to invest your contributions, providing even more growth potential. If your contributions are made through your employer's payroll, you may also reap additional tax benefits.
3. Solo 401(k) Plans for the Self-Employed
If you’re self-employed, take advantage of a Solo 401(k) plan. Similar to other retirement accounts, you can fund this plan until Tax Day and even extend the deadline to October if you file for an extension. This gives you a significant amount of time—up to 10 months from January—to fund your retirement savings for the previous year.
A major advantage of the Solo 401(k) is that it allows potentially higher contributions compared to what typical W-2 employees can contribute. Depending on your income and tax strategy, this could be a fantastic opportunity to boost your retirement savings.
Navigating tax season may seem daunting, but with a bit of planning and the right strategies, you can make the most of your eligible deductions. Consider exploring your options today to maximize your tax benefits, and don’t hesitate to reach out if you have questions or need assistance. https://www.focusedupfinancial.com/contact Happy deducting!
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