Tax filing season provides an opportunity to make decisions that can affect the previous year’s tax bill. There is still time to act on the beneficial options outlined below.
Fund Your Retirement
Now is the perfect time to examine your retirement contributions. According to an article on CNBC.com, “To be financially ready to retire by age 67, you should aim to have 10 times your final salary in savings.”
Before April 15th, you may still have the option to:
- Fund a Traditional IRA (which may lower taxes for the previous year);
- Fund a Roth IRA (which would not lower last year’s taxes but provides a tax shelter for the future); or
- Fund a self-employed pension plan (SEP) if you are self-employed. Note: Funding an SEP may lower taxes for the previous year and, by filing an extension on the federal income tax return, you can extend the investment deadline to October 15th.
Fund an Health Savings Account (HSA)
Should you have a high-deductible medical plan, you often qualify for an HSA. Through April 15th, you can contribute to the account in order to meet the maximum deductible contribution for the prior year. This may lower your taxes for the previous year; however, it is important not to mark those contributions as part of the current year’s contributions.
Consider Filing as Married Filing Separate
In Ohio, married taxpayers where both spouses have income may find that there is a tax savings to file separate returns. This benefit results from Ohio’s tax structure which does not have different tables for each filing status.
When the two incomes are reported separately, each return is subject to the graduation of the tax table instead of the combined amount of the first and second income—which would be subject to higher rates. Since the federal income brackets are different for each filing status, it is prudent to ensure that the federal tax cost of doing so is less than the Ohio tax savings.
It is not too late to save on your 2016 tax return. Please contact me for assistance.
Susan A. Moussi, CPA, CFP®, CDFA
SMD Tax & Divorce Financial Planning Consultants, Inc.