If you want to bring down your 2015 tax bill, your best shot is to sock away any extra savings in your individual retirement account or health savings account.
While most tax-reduction strategies, such as donating to charity, have to be put in place before the end of December, you can contribute to a traditional IRA or HSA for 2015 right up until the tax filing deadline—Monday, April 18 this year—and those new contributions may reduce your taxable income and trim your tax bill. (You can also fund a Roth IRA up until Tax Day, but that won’t entitle you to a deduction since the money you put in is after-tax.)
In the 25% tax bracket, a $5,500 contribution to an IRA—the maximum allowed for 2015—can save you as much as $1,250 in taxes.
If you’re 50 or older, you can save even more thanks to the $1,000 catch-up contribution you can make to an IRA, bringing your max to $6,500.
If you and your spouse aren’t covered by retirement plans at work, you can generally deduct the full amount of your IRA contributions. If you do have workplace retirement accounts, such as a 401(k), your deduction may be limited, depending on your adjusted gross income. Singles filers with income of $71,000 or higher and joint filers earning $118,000 or more are unable to take a deduction.
If you are self-employed or a sole proprietor of a business, you can stash away extra cash in a SEP-IRA or Solo 401(k), both of which can also be funded until the tax deadline, says Cari Weston, director of taxation for the American Institute of Certified Public Accountants. “So many of my clients don’t know that they can do this, and it can be a great way to catch up on retirement savings,” says Weston.
The tax savings can be even great too. You can stash the lesser of 25% of your salary or $53,000 in a SEP-IRA. And with a solo 401(k), you can make deferrals up to $18,000—or $24,000 if you’re 50 or older—and your company can contribute up to 25% of your compensation. But again the total can’t be larger than $53,000.
The other simple way to cut your tax bill: Max out your HSA.
“People have till the filing deadline to contribute money toward last year’s HSA contribution limit,” says Paul Fronstin, director of the Employee Benefit Research Institute’s health research and education program. “But be sure to let your HSA plan provider know which tax year they should apply your contribution to. Online, it could be as simple as checking off a certain tax year. If you’re sending a check, you may need to call or include instructions.”
If you have your high deductible health plan covering only yourself, you can save $3,350 in your HSA for 2015. If you have family coverage, you put away $6,650. Those 55 and older, can save an extra $1,000 on top of those limits.
If you’re planning on applying for a filing extension this year, keep in mind that while your tax forms won’t be due April 18, any 2015 contributions to your IRA or HSA must be made by that original tax filing deadline.