Let’s have a little fun with our taxes, shall we?
You might be wondering whether Bruce and Peg have gone off the rails. When you hear about having fun or “getting creative” with our taxes, you think of billionaires writing off property that doesn’t exist or hiding their money in a Caribbean island, so the IRS won’t find it.
That’s not fun; that’s tax fraud. But let’s face it, if we can find perfectly legal and ethical ways to pay a little less in taxes, it’s pretty fun, at least for us financial advisers.
THERE’S STILL TIME TO CONTRIBUTE TO AN IRA
If you had earned income last year, you could still contribute to a traditional or Roth IRA for 2020 until April 15 of this year. Everyone can contribute up to $6,000 total, and if you are 50 years of age or older, that cap rises to $7,000. The amount you’ll be able to deduct on your taxes depends on your filing status, adjusted gross income (AGI) and whether your employer offers a retirement plan.
Even more fun, 2020 was the first year in which there was no age limit for IRA contributions. In other words, if you are looking at your tax situation and wishing you could reduce your AGI, there might be hope yet.
YOU CAN STILL CONTRIBUTE TO AN HSA
Contributions to an employer-sponsored plan have to be made by Dec. 31. Boring. But HSA contributions, like IRA contributions, aren’t due until April 15. Your individual HSA contribution limit is $3,550, and the family contribution limit is $7,100.
We happen to think HSAs are pretty darn fun. If you are enrolled in a high-deductible health plan, contributions are tax-deferred, just as they are to a traditional IRA. They can grow over time, just like any investment vehicle. As an added bonus, if you use funds in your HSA for a qualified medical expense, you won’t pay any taxes on the distribution either.
Even more fun, if you don’t use the money for a qualified health care expense, after the age of 62, you can withdraw funds for any purpose. There are no penalties for doing so, and your withdrawals will be taxed as ordinary income.
YOU MIGHT STILL QUALIFY FOR COVID STIMULUS
Did you know you could still be eligible for a stimulus check, or checks? Payments for the two rounds of COVID relief began phasing out at an AGI of $75,000 for single filers and $150,000 for married filers respectively.
Your 2019 return was used to determine eligibility for these checks, but if you did not receive one and your AGI is below the income threshold for 2020, you will still be eligible to receive one or both checks. If you are at or near the threshold, it might pay to employ the HSA or IRA strategy above.
If you have read this far, you may have arrived at two conclusions. One, we have very different ideas of what constitutes fun. Two, it might be worth dropping your adviser a line to talk through your tax strategy.
You’re probably right on both counts. But being prepared and getting creative can save you money and take some of the stress out of tax season.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Bruce Helmer and Peg Webb are financial advisers at Wealth Enhancement Group and co-hosts of “Your Money” on KLKS 100.1 FM on Sunday mornings. Email Bruce and Peg at yourmoney@wealthenhancement.com. Securities offered through LPL Financial, member FINRA/SIPC. Advisory services offered through Wealth Enhancement Advisory Services, LLC, a registered investment advisor. Wealth Enhancement Group and Wealth Enhancement Advisory Services are separate entities from LPL Financial.
The Link LonkFebruary 20, 2021 at 10:01PM
https://www.twincities.com/2021/02/20/your-money-have-a-little-fun-at-tax-time/
Your Money: Have a little fun at tax time - TwinCities.com-Pioneer Press
https://news.google.com/search?q=little&hl=en-US&gl=US&ceid=US:en
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