Since 2015 has come to a close and we are now in the peak of tax season, it may be advantageous to look at potential tax savings strategies that could help you save on your 2015 tax bill. Despite the fact that most 2015 income tax related transactions must occur prior to the end of the year, there are still several things you might be able to do now to reduce your tax liability.
Contribute to a Traditional IRA
The maximum Traditional IRA contribution you can make is $5,500, plus an additional $1,000 if you are 50 years old or older at the end of 2015. Contributions can be made for the 2015 tax year by April 15, 2016. The contribution can save on taxes by being deducted from your 2015 taxable income. You must be eligible to take this deduction. Eligibility depends on whether you and/or your spouse are covered by a retirement plan at work and your Modified Adjusted Gross Income (“MAGI”). See the table below for deduction limitation details:
Contribute to a Roth IRA
The Roth IRA contribution limits are the same as the Traditional IRA and can also be made by April 15, 2016. The maximum contribution limits are the same a traditional IRA is $5,500 or $6,500 if you are over 50 years old. Roth IRAs are not tax deductible; however their distributions are not taxable like a Traditional IRA. The Roth IRA contribution does not have limits based on work place retirement plan coverage, so if you already have a retirement plan at work, a Roth IRA may be a good option for you. See the table below for contribution limitation details:
Contribute to a Simplified Employee Pension (“SEP”) IRA
If you are self-employed you may be able to make a deductible contribution to a SEP IRA, the deadline to do so for 2015 is April 15, 2016. The contribution is limited to 20% of your net adjusted self-employment income, although it cannot exceed $53,000 if you are under 50 and you have to make the same percentage contribution to all employees.
Saver’s Credit for Retirement Plan Contributions
Low-income tax payers that make contributions to a retirement plan may be eligible for a tax credit of up to $1,000 for single filers and $2,000 for married couples filing a joint return. The credit is worth 50%, 20% or 10% of your contribution up to $2,000 per individual, depending on your Adjusted Gross income (“AGI”). In order to quality for any of these credits, AGI for single taxpayers must not exceed $30,500 or $61,000 for married couples filing a joint return.
Contribute to a Health Care Savings Account
You may be able to make a tax deductible contribution to a Health Savings Account (HSA) for the 2015 tax year by the April 15, 2016 deadline. In order to contribute to an HSA you must be covered under a high deductible plan and generally cannot have any other health care coverage that is not such plan. You also cannot be enrolled in Medicare or be claimed as someone else’s dependent. For 2015, the individual coverage contribution limit is $3,350 and the family coverage contribution limit is $6,650. If you are 55 or older you can contribute an extra $1,000 to your individual or family account. These contributions are tax deductible and come out tax free if used to pay for qualified medical expenses.
Maximize Your Itemized Tax Deductions
You should itemize if your total itemized deductions exceed the 2015 standard deduction; $6,300 for single filers and $12,600 for married couples filing a joint return. Some of these itemized deductions include mortgage interest paid on your main (and second) home, and real estate taxes paid on your personal residence(s). Charitable donations and unreimbursed medical expenses that exceed 10% of your AGI (7.5% if you are 65 years old or older) also qualify as itemized deductions.
If you are itemizing, make sure you are not missing any potential deductions available to you, such as certain miscellaneous expenses. These expenses are deductible if they total to more than 2% of your AGI. Such expenses include unreimbursed employee expenses, job-hunting expenses, professional dues, tax-preparation fees, and investment advisory fees. If you work from home and have a home office used exclusively for work, consider taking the home office deduction.
Work with a Tax Professional
Taking the do-it-yourself approach to filing your taxes is a cost effective strategy, if you have a simple tax situation. However, as your tax situation increases in complexity professional tax services can be extremely beneficial, by helping you maximize tax savings and planning ahead.
D3 Financial Counselors takes a holistic approach to personal financial planning by incorporating income tax planning and annual tax preparations into our highest level of service. Check out the services on our website or reach out to one of our team members to learn more about the types of financial services we offer. D3 Services
-Isabelle Crouse, CPA, MBA