Take advantage of expiring tax breaks
Posted on March 12, 2018
2017 has come and gone, but if you are still looking for ways to fine-tune your tax bill before this year’s April 17th filing deadline, Teipen Selanders Poynter & Ayres has some suggestions:
- If you turned 65 in 2017, you can take an additional standard deduction, worth $1,550 for singles and $1,250 for you and your spouse if you’re both at least 65.
- If you turned 70½ last year, you must take your first RMD (Required Minimum Distribution) from your IRA or 401(k) retirement account no later than April 1. Make sure you don’t postpone this, or the IRS can tack a 50 percent penalty on the amount that should be withdrawn. Check with your CPA if you need additional information.
- Be sure to max out your Health Savings Account, especially if you have a high-deductible health insurance plan. You may be able to write off up to $3,400 ($6,750 for families) for an HSA contribution, or if you’re 55 or older, you may be eligible for an extra $1,000. Ask your CPA for details.
- It’s not too late to fund an Individual Retirement Account with up to $5,500 ($6,500 for those 50 or older) pretax in a traditional tax-deferred IRA. This action alone could save someone in the 25 percent tax bracket $1,375.
- Married? You can also fund an IRA in your spouse’s name as long as one of you earned enough income to match the IRA contribution. Check with your CPA for IRS limits and regulations.
- Open or contribute to a Roth Individual Retirement Account. (Contributions made in 2018 will be applied to this year unless you specify it’s for the 2017 tax year.) Although a Roth IRA won’t give you a pretax break, withdrawals are tax-free after age 59½.
- Business owners and the self-employed can stash pretax money in a SEP (Simplified Employee Pension Plan). Generally, you can contribute up to 20 percent of your net employment income. You have up to April 17 to fund an IRA or Roth IRA, but you can fund a SEP until Oct. 15 with a filing extension. Again, ask your CPA for particulars.
- If you moved more than 50 miles for a new job in 2017, you can write off 17 cents per mile for driving your own vehicle. TSPA CPAs say that generally, job-related expenses that exceeded 2 percent of your adjusted gross income are also deductible.
- Itemized deductions for property losses due to disaster, theft or accident that weren’t reimbursed by insurance can also be claimed. The new tax law preserves the casualty- and theft-loss deductions — but only for federally declared disaster areas — while the other tax breaks have expired.
- Don’t forget eligible tax credits such as the Retirement Savings Contributions Credit, which provides some low- to middle-income workers credits worth up to $2,000 (or $4,000 for married couples filing jointly) based on retirement plan or IRA contributions. Others may qualify for an Earned Income Tax Credit depending upon their filing status. Couples filing jointly with adjusted gross income of up to $53,930 and three or more dependents can get up to $6,318.
Our CPAs recommend that if you owe taxes, you file (and pay) on time. However, if necessary, you can get a six-month tax filing extension by filing IRS form 4868 by April 17. That said, filing for an extension is not an extension on what you owe. You still must pay any owed taxes by April 17th. The IRS can and will dock you a late-filing penalty of 4.5 percent per month on the amount owed and not paid, plus a 0.5 percent late-payment penalty – so best to avoid that.
In the meantime, let’s talk about what we can do to help lower your tax bill. It’s not too late to schedule an appointment with us to help prepare your 2017 taxes.