Last year, during my annual tax visit to the accountant, we discovered that there was a close call with my income. One more deduction would have been just the thing. After a minute of thought, the accountant reviewed my Health Savings Account contributions and realized that I hadn't maxed out the contributions. He pointed out that I could still make a previous year contribution to the account, and the deduction would bring my income down just enough for a fairly significant tax savings.
If you are still casting about for a last minute tax deduction for last year's taxes, you might be in luck.
Contribution Deadline: Tax Day
There are some tax advantaged accounts with contribution deadlines on tax day. So, as long as you make your contribution to a tax-advantaged investment account by that time, you can still reduce your income for the previous year.
You can make contributions to a Traditional IRA up until tax day, so if you haven't maxed out your contribution for the last tax year, you can do so now -- without impacting your ability to contribute to your account this year. This also applies to the SEP IRA. Make sure you understand the contribution limits for the tax year of the contribution, though, since limits change in response to inflation.
You also have the opportunity to contribute to your HSA, if you have one. If you have a high deductible health insurance plan, it's possible for you to make contributions up until tax day. So, if you have maxed out your contributions, now is a good time to do so. One of the great things about the HSA is that you get a tax deduction for your contributions, and the money grows tax-free on top of it, as long as you use the money for qualified health care expenses. The HSA is one of the most convenient tax-advantaged accounts -- as long as you can handle the higher out of pocket costs that come with a high deductible plan.
When you make previous year contributions, you need to make sure you do it right. Your contribution should be clearly marked as a previous year contribution. When you contribute online, most institutions will ask you to check a box for the appropriate year. If you send in a check (it should be postmarked by tax day), the memo line should clearly state the year you want the contribution applied to. If you don't mark it as a previous year contribution, it will be applied to the current year, and you'll miss out on the deduction.
Bonus: 529 State Tax Deduction
You don't receive a federal tax deduction for contributions made to a 529 plan. However, there are some states that will offer you a tax deduction when you contribute to your state's 529 plan. Check your state's policy to find out if you can get a tax deduction. This is a great way to grow your child's college fund with the help of compound interest, and reduce your tax liability at the state level.
In many cases, states that offer deductions for 529 contributions also allow you to make previous year contributions up until tax day. That way, even if you missed out on contributions in the previous year, you can still get help on your state taxes when you make an extra contribution. As with the Traditional IRA and HSA contributions, though, you need to make sure you haven't already maxed out your contribution for the previous year, and you need to clearly indicate which year the contribution is meant for.
Just because December 31 has passed doesn't meant that all hope is lost. You can still get another tax deduction. Look at your tax-advantaged accounts, and see if there is room for a previous contribution.
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