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Do You Need a Tax Deduction?
Friday, 07 February 2020 13:55

If you haven't filed your tax returns yet, there are some last-minute strategies that can reduce your tax bill.

lastminuteContribute to an Individual Retirement Account (IRA)

The annual contribution limit for 2019 is $6,000, or $7,000 if you’re age 50 or older.

If neither you nor your spouse is covered by a retirement plan at work, your deduction is allowed in full.

For contributions to a traditional IRA, the amount you can deduct may be limited if you or your spouse is covered by a retirement plan at work and your income exceeds certain levels.

Roth IRA contributions aren’t deductible.

You may contribute to your IRA for 2019 up until you file your tax return, or April 15th, whichever comes first.

If you don't have an IRA, you can still set one up and make contributions for 2019 between now and when you file your tax returns, or April 15th, whichever comes first.

If you're self-employed, here's another idea:

Contribute to a Simplified Employee Pension (SEP)

The contributions you make to each employee’s SEP-IRA each year cannot exceed the lesser of:

  • 25% of compensation, or
  • $56,000 for 2019 ($57,000 for 2020).

If you are self-employed, base your contribution on net profit - minus one-half of the self-employment tax - minus your SEP contribution. See IRS Publication 560 on determining the contribution amount.

The neat thing about the SEP: You must deposit contributions for a year by the due date (including extensions) for filing your federal income tax return for the year. If you obtain an extension for filing your tax return, you have until the end of that extension period to deposit the contribution, regardless of when you actually file the return.

If you own a business with employees:

Most SEPs, including the IRS model Form 5305-SEP, require you to make allocations proportional to your employees' salary/wages. This means that everyone’s contribution is the same percentage of salary, so if you have W-2 employees that work for you then you have to contribute to their SEP, too. These contributions are tax-deductible.

Tax Deduction Ideas for 2020

  • Purchase Long Term Care insurance - the premiums are tax-deductible up to certain age-based limits.
  • Move CDs, Money Markets, and other taxable investments to a Deferred Annuity - This enables you to control when taxes are due through the tax deferral of the annuity.

If you have questions, call me today at (800) 680-5596 or complete the form below: