We are coming to the *end* of tax season…or what was the original deadline of April 15th, which of course has now been extended for a second year: June 15th in the state of Texas, May 17th for everyone else. Regardless, with a little extra time again this year, and especially considering the stimulus payments, we wanted to take a moment and mention a couple of tax-effective and tax-efficient strategies that you may still be able to employ. The first is contributions to various types of IRA’s:
- ROTH IRA: If you can contribute to a Roth IRA, make that contribution before your filing deadline. It is not a “deductible” contribution, but neither will it be taxable when you take withdrawals after age 59½. Because You Asked: How Is a Roth IRA Different from an IRA?
- IRA TRADITIONAL: If you need the tax deduction this year, contribute to an IRA:
- A. The maximum contribution for both traditional and Roth IRAs is $6,000 or $7,000 if over age 50.
- Be aware of income “phase-outs” for Roth Contributions: income above $140,000 if filing as single, and $208,000 if married.
- SEP IRA: We have written in previous blogs about this amazing tool for solo or small employers here: Because You Asked: What is the Best Retirement Plan for Self-Employed or Small Business Owners?
- Set up the Simplified Employee Pension (SEP) by your business’ tax filing deadline, including extensions as needed.
- Make the contributions to all employees for the year you want the deduction for your business. All employees must receive the same percentage of salary contribution, if eligible to participate.
- No salary deferrals, no FICA taxes, and not counted as income to employees!
- Maximum contribution in 2020 = $57,000 or 25% of income, whichever is less.
- There are further adjustments/calculations for self-employed individuals.
- HEALTH SAVINGS ACCOUNT: If you have a High Deductible Health Insurance Plan (see limits below) and set up a Health Savings Account before year-end, you can make a tax-deductible contribution to the HSA for the previous year:
|Status||Minimum Annual Deductible||Max Out-of-Pocket Expense||Contribution Limits|
|Catch Up Contribution age 55+||$1000|
|* If both spouses in the family plan are over age 55, you can make the additional $1000 contribution for each, but the HSA provider will set up a separate account to hold that extra $1000.|
Link to blog post focused on Health Savings Accounts: Because You Asked: What is a Health Savings Account (HSA) and How Can it Benefit Me?
These are just a few of the ideas to help you make the most of your tax filings. Please consult with your advisors to determine the best fit for your situation.