THE CLOCK IS TICKING TO file 2018 tax returns or request an extension. But even if you've procrastinated, there's still time to take advantage of beneficial deductions and credits. "You may still be able to take action to reduce your tax bill," says Chris Hershey, a certified financial planner and supervisor of financial planning at eMoney Advisor, a provider of wealth management technology.
With that in mind, here are seven strategies to optimize last-minute savings on your 2018 tax bill:
- Contribute to a health savings account.
- Contribute to a retirement account.
- Add up your child care and dependent care costs.
- Itemize deductions.
- Write off business expenses for a side hustle.
- Claim the qualified business income deduction, if possible.
- See if you qualify for the Lifetime Learning Credit
Learn more about each strategy – and brush up on tips to optimize savings before filing next April.
Contribute to a health savings account. Typically, only expenses incurred prior to the end of the calendar year can be deducted from taxes. However, "there are a few exceptions in which you are able to make post-Dec. 31 (deductible) contributions," says Eric Bronnenkant, head of tax for the 401(k) plan administrator Betterment for Business.
One exception is contributions to health savings accounts. Those with eligible high-deductible health insurance policies can contribute up to $3,450 to a health savings account for the 2018 tax year if they have an individual plan, or $6,900 if they have a family plan. Those age 55 and older are eligible to make an additional $1,000 in catch-up contributions. Money can be contributed up to the tax-filing date – April 15 – and still be deducted.
Contribute to a retirement account. Deductible contributions to an IRA can also be made until April 15. For the 2018 tax year, taxpayers can deduct up to $5,500 in contributions to a traditional IRA. Those age 50 and older can contribute $6,500. However, if you have a retirement plan at work, such as a 401(k), your deduction may be limited if you earn more than $63,000 as a single taxpayer or $101,000 as a couple filing jointly.
If you're a business owner, you contribute to a SEP IRA, which may provide an even bigger tax deduction, says Kenneth Ameduri, chief editor of the finance website CrushTheStreet.com. Tax deductible contributions to a SEP IRA for 2018 can be as much as 25 percent of your compensation or $55,000, whichever is less. What's more, if you file an extension on your return by April 15, 2019, you can make a 2018 tax deductible contribution to a SEP IRA as late as the extended deadline in October. That's not an option with a traditional IRA.
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