Most people dread it. Often, individuals have the concept of Uncle Sam holding out his hand waiting for you to pay him every April 15th (although in 2017, it’s actually April 18th). Whether it is the amount of tax due from the previous year or their first quarterly estimate tax payment, it tends to make people cringe. Many individuals and business owners alike await the results, often times under the premise nothing additional can be done in assisting them with the previous year’s tax liability. However, those people are incorrect.
Here are some ways your 2016 tax liability can still be adjusted:
Now or Later?
There are alternatives businesses and individuals can capitalize upon to potentially reduce their tax liability for the prior year and future years, which include contributions to the various types of retirement and pension plans. From a business perspective, these retirement plans would include:
A deductible contribution to one of these plans is deemed as being made as of the last day of the tax year if it is paid no later than the due date, including an extension of time to file the return. All of the previously listed retirement plans have their own unique features, characteristics, and limitations. By being able to defer this contribution through its extended due date, this offers a business the opportunity to contribute later within the year, while optimizing their cash flow of the business.
Looking at this from a personal standpoint, an individual is still allowed to contribute to a traditional or Roth IRA by the original due date of their personal return and could still potentially be considered an allowable contribution for the previous tax year. From a personal income tax view, this differs from many business retirement plans since the contribution must be made prior to an extending filing period. IRAs as well have certain limitations.
For those individuals aged 50 years and older, additional contributions can be made to a retirement plan, commonly referred to as catch-up contributions. These additional funding opportunities are available from a business and individual perspective.
Here’s to Your Health
If an individual is enrolled in a high-deductible health plan, a contribution to a health saving account is allowed through the original filing deadline of April 18th. For taxpayers having individual and family plans, the contribution limits are $3,350 and $6,750, respectively. People aged 55 and over are allowed to contribute up to a $1,000 catch-up contribution to the individual or family coverage contribution limit. These contributions can be deductible on a personal income tax return as an adjustment to income. Unlike a flexible spending account, these funds can be carried over each year without the penalty of losing these funds if they are not utilized.
The Right Opportunity to Start
The proverbial tax deadline can also be a stepping stone to considering 2017 tax implications that might be unusual or unique in nature to help maximize tax and future financial savings. At times, this is when a taxpayer may want to review tax planning initiatives and strategies to increase their financial well-being.
Are you expecting a significant decrease or increase of income for the remainder of this year, placing an individual in a completely different tax bracket? Maybe a retirement plan or health savings account has been established, yet not utilized in past. As one former college basketball coach used to say, “The will to succeed is important, but more important is the will to prepare.”
Have questions or want to talk about your taxes? Give us a call.