The April 15th tax deadline is right around the corner and many Americans wait until the very last minute to file. There are several ways to build your wealth while still reducing your tax bill. While it may be too late to help with your 2018 taxes, it is a great time to resolve to make the most of special investing your accounts that offer valuable tax breaks.
- 401(k) and 403(b) plans. Does your employer offer a retirement plan that also pitches in a matching contribution? This is a great opportunity to reduce your overall tax liability. Check with your human resources to make sure you are contributing enough to earn the maximum match from your employer. If your plan offers a Roth version, that can also be a smart way to save. In retirement, a withdrawal from a Roth 401(k) will be 100% tax-free. Withdrawals from a traditional account will be taxed as ordinary income.
- Individual Retirement Accounts (IRA’s) In addition to a 401(k), everyone with earned income is eligible to contribute to an IRA. If you are married but don’t earn an income, you can have a spousal IRA based on your spouse’s income. In 2019, if you are single and makes less than $122,000 or married and make less than $193,000, you can contribute $6,000 to a Roth IRA ($7,000 if you are at least 50). The payoff for this option is that your withdrawals in retirement will be tax free.
- Health Savings Account (HSA) If you have a high-deductible health plan, you are allowed to have a HSA. This really only works if you have the cash set aside to handle the higher deductible. If you do, an HSA offers tax breaks. The money you contribute is tax-deductible. The money grows without any tax bill while it is invested in your HAS. And when you use the money to pay for qualified health care expenses, it is not taxed. Money you set aside in an HAS can be used to pay for current medical expenses, or you can let the account grown and then use it in requirement to pay for medical costs.
- 529 College Savings Plan. If you are on the track with your retirement savings, another smart way to save is a 529 College Savings plan. Money you contribute to a 529 plan grows tax-deferred, and there is no tax when you use the account to pay for qualified college costs.
Many of the problems we see with client’s tax returns involve incorrect data on the return. Before the return is filed, make sure the information on the return is correct. Lately, the Chapter 13 trustee is reviewing returns closely. If business income is reported on the return without a business listed in your petition, that will be questioned. If you claim dependents that are not living with you, that too is questioned. Be truthful and have records to support any deductions claimed.
If you are in a bind with owing taxes, please contact one of our Bond & Botes attorneys for a free consultation.