Contributing to your retirement account is one of the best ways to reduce your taxable income and increase your potential tax refund. While some retirement accounts have year-end deadlines for contributions and required distributions, others give you extra time to make deposits that will count toward tax year 2020. Check out these end of year moves that will qualify you for tax savings!
Make 401(k) contributions.
There may be no better investment than tax-deferred retirement accounts. They can grow to a substantial sum because the interest compounds over time, free of taxes. If you’re able, max out your 401(k) contribution before year-end ($19,500 maximum allowed for 2020, $26,000 if you are age 50 or over = the $19,500 regular limit for the tax year plus the $6,500 catch-up limit for 2020), so that you can lower your taxable income and make the most of your retirement.
Use the time for IRA contributions.
In addition to your 401(k), consider contributing to an Individual Retirement Account (IRA), as well. You have until May 17, 2021, to make IRA contributions for 2020 and make an impact on your 2020 taxes. However, the sooner you get your money into the account, the sooner it has the potential to start to grow.
Making tax-deductible contributions also reduces your taxable income for the 2020 tax year. You can contribute a maximum of $6,000 to an IRA for 2020, plus an extra $1,000 if you are 50 or older.
If you are self-employed, you can contribute to a Simplified Employee Pension (SEP) IRA as much as the lesser of 25% of your net earnings or up to $57,000 for 2020, and your contributions may be tax-deductible as a business expense if you file and extension by April 15 and contribute before the October 15th extension deadline.
Qualify for the Saver’s Credit.
There’s another plus to contributing to your retirement. You may automatically be eligible for the Saver’s Credit worth up to $1,000 ($2,000 married filing jointly) just for contributing to your retirement account. The Saver’s Credit can be claimed for your contributions to a 401k, 403(b), 457 plan, a Simple IRA, or a SEP IRA. Your contributions to a traditional IRA or a Roth IRA are also eligible for the Saver’s Credit.
TurboTax Has You Covered
Don’t worry about knowing these tax rules. TurboTax will ask you simple questions about you and give you the tax deductions and credits you are eligible for based on your entries. If you have questions, you can connect live via a one-way video to a TurboTax Live tax expert with an average 12 years of experience to get your tax questions answered. You can even connect virtually with a dedicated tax expert who will prepare and file your tax return in entirety with TurboTax Live Full Service. TurboTax Live tax experts are available in Spanish and English, year-round and can even review, sign, and file your tax return.
If you are Self Employed, you can use QuickBooks Self-Employed to easily track your income, expenses, mileage, capture your receipts and estimate your quarterly taxes year-round. Your information can then be easily exported to TurboTax Self-Employed at tax-time.