Last-Minute Moves to Save On Your Taxes
The best last minute tax moves are done before the calendar flips into the new year, but depending on your financial situation, you might be able to squeeze in one more tax deduction if you waited to file your taxes.
It’s possible to make previous year contributions for your Traditional IRA and your HSA up until you file your taxes by April 15.
So, if you think another tax deduction could help your tax situation, you can still make your move today and have it apply to last year’s taxes.
If you have a Traditional IRA, and you haven’t maxed out your contributions for last year, now is a great time to do so. The contribution limit for IRAs in 2013 is $5,500, or $6,500 if you are at least 50 years old. If you haven’t reached that limit, and you aren’t at the income phaseout level for the tax deduction, you can contribute more, and have that count for the previous year.
When making your contribution, it’s important that you specify that you are making a previous year contribution. If you send in a check, contact your IRA custodian to find what you need to do.
Often, you need to send in a form or you need to make a note of the fact that it is a previous year contribution on the memo line of the check. It could be as simple as writing “2013 contribution,” but check with your custodian to find out what they want.
If you are transferring the money electronically, carefully watch for the checkbox. Before you hit the “submit” or “continue” button, double-check that you have specified that you are making a previous year contribution. It’s a lot harder to recharacterize it later.
Realize, too, that you can’t count the contribution for two different years. You have to pick which year you want it to apply to, and then abide by that decision.
Health Savings Account
You can also get a truly last-minute tax deduction when you contribute to your HSA. As with the Traditional IRA, you can contribute up until tax day for the previous year. However, the contribution limit is higher if you have a family.
For a single contributor, the 2013 limit is $3,250, but for a family, it’s possible to contribute up to $6,450 for the year. There is a catch-up contribution of an extra $1,000 for those who are 55 and older.
The nice thing about a HSA contribution is that the money grows tax-free as long as you use if for qualified medical expenses. So, you get the deduction AND you might not have to pay taxes on the earnings.
As with your Traditional IRA contribution, you need to be careful to indicate whether you are making a current year contribution or a previous year contribution. Additionally, if you accidentally choose current year, and then go on to max out your contributions with new money, you could end up putting too much into your account and being penalized.
With a little planning, and if you have enough extra, you can contribute to a Traditional IRA and a HSA. That amounts to a fairly substantial tax deduction, and it puts you in a position where your money can grow more efficiently.
Haven’t filed yet? TurboTax will help you file before the tax deadline and get these and other tax deductions.