Tax day is almost here.
Americans have until July 15 to file their returns and pay any tax they owe from the 2019 tax year. The deadline is three months later than the usual tax deadline because of the coronavirus. In March, the Internal Revenue Service extended the deadline to give Americans extra time as they dealt with the pandemic and state shutdowns.
If you want to lower your tax bill, there are three last-minute ways to do this before July 15.
Contribute more to your IRA
Maxing out your retirement contributions is at the top of many financial experts’ list. Contributions to traditional individual retirement accounts, or IRAs, are funded by pre-tax earnings and can be tax-deductible if you meet certain income and filing status conditions.
“This is great because it can lower your taxable income, which can lead to a potential tax refund boost of up to $900 or more,” said Lawrence Gonzalez, an auditor at the U.S. Treasury Department.
For the 2019 tax year, Investors can deposit up to $6,000 this year for traditional IRAs. Those 50 and over can make an extra $1,000 in contributions.
“The traditional IRA contribution has secondary effects since it can reduce your adjusted gross income (AGI) and ensure that other credits aren’t phased out such as the student loan interest credit,” Gonzalez said. “Additionally, the AGI recently helped many retain the $1,200 stimulus checks since the threshold of less than $75,000 was based on the AGI.”
Make a lump sum contribution to your work-based retirement plan
While it may be too late to increase contributions to an employer-based 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan through withholdings, you may be able to make a lump sum contribution from another qualified account, such as an IRA
This requires two steps. First, you must move the funds from an IRA to the 401(k) or other plan. Next, you need to put another contribution into your IRA to get the maximum reduction on your taxable income. All of these contributions must remain within the annual limits.
The maximum limit for 2019 contributions to a 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan is $19,000, while it’s $6,000 for traditional IRAs.
Self-employed workers can also make extra contributions to SEP-IRAs before July 15. These contributions can’t exceed 25% of compensation or $56,000 for 2019, whichever is less.
Contribute more to your HSA
If you’ve already maxed out your IRA and 401(k) contributions for this year, experts say don’t overlook your Health Savings Account, or HSA, which also is funded by pre-tax money and reduces your taxable income. If you use funds in these accounts on eligible medical expenses, the withdrawals are not taxed.
Another benefit: Earned interest is tax-deferred or tax-free if you use it for medical expenses. Any unused money in the account can roll over to the next year. Last, if you still have funds in the HSA when you hit 65, they can be used for any purpose — without penalty.
For 2019, the maximum contribution is $3,500 for self-only coverage and $7,000 for family plans.
“Likewise, you may be able to ‘top off’ your HSA,” said Bill Smith, managing director at CBIZ MHM’s national tax office. “Account holders turning 55 can throw in an extra $1,000.”
Read more information and tips in our Taxes section