April Tax Strategy Deadlines That You Thought Were in December

If the holidays hindered your best tax-efficiency intentions, take heart.  There are areas where you have until the 2020 tax filing deadline to take action, overriding a December 31, 2019 deadline assumption. Here are two, last-minute tax saving strategies of which you can still take advantage.

Traditional IRA Contributions

One last-minute, tax saving strategy is contributing to your traditional IRA.  If you were younger than 70-½ on December 31, 2019 and had earned income for the year, the IRS allows you and/or your spouse (even if he or she has no earned income) to make traditional IRA contributions up until the tax filing deadline of April 15, 2020. The age restriction on traditional IRA contributions has been removed for 2020 and beyond, thanks to the recently passed SECURE ACT.

The maximum contribution for 2019 is $6,000, or $7,000 if you were age 50 or older last year.  These contributions are fully deductible, unless you or your spouse are covered by a retirement plan at work.  In that case, the deductibility of these contributions is subject to certain income limits.

If you are single and covered by a retirement plan at work, the deduction completely phases out if your Modified Adjusted Gross Income (MAGI) exceeds $74,000.

For couples, if you file jointly and you are covered by a retirement plan at work, your deduction completely phases out if your combined MAGI exceeds $123,000.  If you’re not covered by a retirement plan at work, but your spouse is, your deduction completely phases out if your combined MAGI exceeds $203,000.

It’s worth noting that even if your traditional IRA contribution is non-deductible, or only partially deductible, it still offers additional advantages in terms of tax-deferred growth and future Roth conversion opportunities.

Health Savings Accounts (HSAs)

Another last-minute, tax saving strategy is contributing to your HSA. If you have a high-deductible health insurance plan through work (deductible of at least $1,350 for single coverage or $2,700 for family coverage, with an out-of-pocket maximum of $6,750 and $13,500, respectively), you are eligible to contribute to an HSA up until the tax filing deadline of April 15, 2020.  You can contribute up to $3,500, if you have single healthcare coverage, or up to $7,000 for family coverage.  If you were 55 or older at any time during 2019, you can contribute an additional $1,000 to your HSA.

The contributions you make are 100% tax deductible but be sure to take into account any contributions your employer might make on your behalf.  Employer contributions count towards the maximum contribution limit and cannot be deducted on your return.  Regardless, contributing to your HSA remains one of the best tax strategies available.  Your personal contributions not only save you taxes on the front end, but also grow tax-free and come out tax-free if used for qualified medical expenses.

Not surprisingly, the ability to adjust your taxes diminishes considerably after the tax-year ends, so the best course of action is to begin thinking about tax savings strategies early in the year.  The advisors at Budros, Ruhlin & Roe are well-versed in the intricacies of tax planning and consider it a valuable, ongoing piece of comprehensive wealth management.   We often partner with your existing accountant to leverage our collective skills and arrive at the very best tax strategies to benefit you and your family.  If you or someone you know is looking for guidance with wealth and tax planning, we would welcome a conversation to identify how we can help.

Michael Kline, CFP®

Senior Wealth Manager