The 2019 Tax season is now fully operational, but that has not made it too late to check out some tax strategies that may reduce your tax bill for 2018. It is not surprising; many Americans are faced with a bit of sticker shock, seeing a higher tax bill than expected, or refund much lower than expected.
These are four methods you could make use of to utilize tax-favored accounts to lower your bill of 2018:
The most apparent means to lower your tax liability for 2018 in early 2019 is to make a 2018 deductible contribution to a traditional IRA. The highest amount you can make to an IRA for 2018 is $5,500. If you were 50 years or above by 31st December 2108, you could make an additional $1,000 referred to as "catch-up contribution."
The following requirements must be met:
You or your spouse must possess "compensation" means earnings, such as W-2 wages or self-employment income reads as "compensation." It does not involve income from interest, capital gains, dividends, pensions, Social SECURITY BENEFITS OR DISTRIBUTIONS FROM retirement accounts.
b. Your birth date must be on or after 1st July 1948, as those individuals 701/2 or more by the end of 2018 are not permitted to make any traditional IRA contribution for the year.
Another means of lowering your 2018 tax liability is by making a 2018 HSA contribution. HSA is seen as tax-favored account because they give triple tax benefits; tax-deferred growth, tax-deductible contributions, and tax-free distribution. You are only allowed to contribute to an HSA if you were registered in an HSA -eligible High Deductible Health Plan (HDHP), but your total contributed amount will depend on the type of an HDHP you possess.
Contributions to tour HSA for 2018 are restricted to $3,450 if you signed up in an individual HDHP for a whole year. Alternatively, if you signed up in a Family HDHP for the entire year, the highest contribution is $6,900; this is twice the amount for persons with an individual HDHP plan.
If you are an owner of a business, you may still have another option at your disposal to get a deduction and reduce your 2018 tax liability:
A SEP IRA contribution. Many employer plans such as a SIMPLE IRA, or 401(k) requires a set up before the year runs out. A SEP IRA can be started and funded up to the deadline for the tax filing, including the shifting of the business funding the plan. With a file for an extension, S corporations and Calendar year partnership may generally establish as well as fund SEP IRAs for 2018 through September 15, 2019.
Note that filing an extension does not shift the deadline to make a SEP-IRA contribution; it does change the period to make a SEP-IRA contribution. Therefore for an owner of a business lacking cash, who is capable of saving enough to make contributions to a SEP later in the year, the SEP IRA gives distinct benefits.
Generally, there are two means you can reduce your tax liability. You could make use of deductions to reduce the amount of income that tax is paid on, or you can utilize your credit to lower your tax bill.
To be eligible for Saver's Credit, you must go through a 4-part test.
a. you must be 18 years or older
b. You must not be a full-time student.
c. You must not be a claimed dependent on someone else's return.
d. Possess an adjusted gross income (AGI) within the required limits for your filing status.
If you passed this prerequisite and did not contribute at least $2,000 to any retirement account in 2018, making contributions to an IRA now, for the previous year, will provide you a tax credit. The highest Saver's Credit you are qualified for depends on your income and filing status, but an IRA contribution today, done for 2018, could net up you a $1,000 for you to use towards your 2018 tax liability.
Accounting Advantage, Pa