A Financial Planner’s Last-Minute Tax Tips

We are getting closer and closer to April 15th, the proverbial tax filing deadline. As we near that time, you are probably in the thick of collecting forms and information to prepare your taxes, whether you work with a CPA or a trusted tax preparer or try to tackle it yourself using Turbo Tax or some other type of software.

In most financial calendars, 2020 is long behind us, even though it may not feel like it. As a result, you cannot do much at this stage in the game to impact your liability for last year. However, here are three tax tips that you should have on your radar screen.

Three Tax Recommendations to Consider:

• Max Out Your Health Savings Account

Our first tip relates to taking advantage of the retroactive contribution rules for a Health Savings Account (HSA). In most cases, you are eligible for an HSA by virtue of having a high deductible insurance plan. Whether or not you maxed out your contribution to it last year, you can do so now. More clearly stated, if you did not max out last year, you can still make a catch - or retroactive contribution for last year, now. That means, for example, if you are married with children, you are able to contribute up to $7,100 towards a health savings account (for 2020) and reduce that from your taxable income.

• Contribute the Full Amount to Your IRA and Roth IRA

Our second tip is to make full use of retroactive contributions to specific retirement accounts. Not your retirement accounts through your work or employer, but an IRA or Roth IRA.

Like a health savings account, both an IRA and Roth IRA can be funded retroactively, meaning you can contribute $6,000 to an IRA or Roth IRA for last year. For those that are 55 or older, that contribution amount is actually $1,000 higher for 2020.

If you have any self-employed earnings for 2020, you can make a retroactive deductible contribution to a SEP IRA. SEP stands for Self-Employed Pension. A SEP IRA is a retirement vehicle for folks who have self-employed income, and the contribution amount is generally about 20% of that self-employed income. You will want to check with your CPA or tax software for the exact specifications, but the bottom line is those contributions can be made retroactively and they reduce the amount of your taxable income. 

• Gather All of Your Tax Documents

Our third and final tip is simple. Make sure that you have gathered all the necessary tax forms from your financial institution's bank accounts. IRA accounts, IRA brokerage accounts, stock accounts, mutual funds, every one of those is going to generate a tax form for you, and it is incredibly important that you have all of those forms and pass them on to your CPA.

In fact, one of the top reasons why people receive a communication from the IRS, six months or so after filing their taxes, is not that they have done something wrong, but that they didn't turn in one of those forms to their CPA; or while filing their taxes. All of those financial institutions report to the IRS, and if you do not supply all of the tax documents you receive to your accountant, they don't know to put the information on your tax return. That, in turn, makes the IRS look at the difference and send you a letter pointing out that you are missing pertinent financial information on your taxes.

Finally, if you own a business, medical practice, or dental practice, there are definitely opportunities around sound tax guidance. However, a more technical explanation is better suited to a thoughtful conversation with your tax preparer or CPA.

How can we help?

If you are in doubt, or tax seasons reminds you that you need to bring some organization to your finances, feel free to reach out to Spaugh Dameron Tenny. We are always happy to connect with you to see if we can be of help with your financial wellness.

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