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3 Ways to Save Tax After Year End

You've gathered your documents, crunched the numbers (or your accountant has), and you either owe money or your refund isn't as much as you'd hoped. You're scratching your head wondering if there's anything you can do that can help reduce the tax bite even though the year's over.

Because we're talking about taxes, the answer is always "it depends." However, let's discuss three late-inning planning ideas that can help soften the blow.

Contribute to a Traditional IRA

Assuming you haven't already maxed out your IRA contributions for the year including deductible, non-deductible, and Roth, consider making a deductible IRA contribution. You'll need to be sure to mark it as a prior year contribution with your custodian and do so prior to the filing deadline of April 15. If you are married and file a joint return, you may be eligible to make a spousal IRA contribution as well. You're then able to claim the contribution as a deduction on your tax return as if you had made it prior to year end.

The big caveat in this case is going to be whether you (or your spouse) participated in an employer retirement plan at work. If that's the case, then the amount that you may deduct may be limited or disallowed all together.

If you're not eligible to make a deductible contribution, it's still worthwhile to consider making a Roth contribution, if your income allows, or a non-deductible contribution in the case your income phases you out of Roth eligibility. While you won't get the tax benefit today, you'll at least get the tax free growth in the case of the Roth or tax deferred growth in the case of the non-deductible contribution. In any case, you'll be putting just that much more toward retirement.

Contribute to a Health Savings Account (HSA)

You can make contributions to your Health Savings Account (HSA) until April 15. The good news is that unlike deductible and Roth IRA contributions, there are no income limitations with regards to making HSA contributions; you can make contributions regardless of your income. However, you may only contribute to the extent that you were covered by a high deductible health plan in the prior year. HSAs are deserving of their own post but it's a great way to tax efficiently save for future health care expenses in the near future or even into retirement.

Contribute to a SEP IRA

Two great features of a SEP IRA are that they may be both established and funded after the year end while still receiving the tax benefit for the prior year. SEP IRAs are relatively low maintenance, allow for flexible employer contributions, and allow generous contribution limits. Admittedly, this strategy is only available to those that have self-employment income and businesses.

Let's assume that you work a day job and receive a W-2 and that you also received additional 1099 income for some freelance work that you do and your total income makes you ineligible to make a deductible IRA contribution. A SEP IRA could be a good option to help reduce your taxable income. The amount you can contribute is going to be dependent on the amount of eligible compensation from the freelance work but you don't have the pesky income limitations like you do with the traditional IRA getting in the way of your deduction.

If you own a business that has employees, the decision about a SEP becomes more complex and you definitely want to discuss with financial and tax professionals.

While the above strategies can help lessen the blow today, proactive planning is the best course of action to help reduce surprises and ensure that you're being tax efficient throughout the year.

A Few Quick Planning Tips

  • Double check your withholdings. The IRS released a new Form W-4 to help reduce the complexity and increase transparency and accuracy as it relates to your tax withholdings in an attempt to make the process more straightforward. If you had a large refund or amount due, it's a good idea to check out the new W-4 and file it with your company's HR to update your withholdings.

  • Project out your current year taxes and recalculate estimate payments based on current year taxes rather than just using a prior year safe harbor method. This is especially important if you have income that isn't subject to withholdings such as those that own businesses, are self employed, receive investment income, or rental income.

  • Consider maximizing available tax advantaged accounts including employer provided retirements plans, such as a 401(k), health savings accounts, and IRAs, including Roths, throughout the year. This can help smooth the cash outflow into these plans rather than having to come to the table with a check at tax time with the hopes that you can make a tax-deductible contribution.

Because all of the above have different rules surrounding their applicability, it's best to work with a financial planner or tax advisor to best understand your situation and your eligibility. If you'd like to know more or start planning for this year, schedule an introductory call!


The above is for general information only. Consult with competent investment, tax, or legal counsel to best understand your unique circumstances before implementing any strategy. Read our firm's disclaimer here:


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