Three ways to reduce last year’s 2018 taxes

You can actually still do this - reduce your tax bill for the 2018 tax year. Here are three ways to cut your taxes before filing day on April 15th.

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1. Make a contribution to the savings account (HSA) for 2018 year

Such accounts provide the opportunity to receive some of the best and most affordable tax benefits - in fact, the benefit will be triple, writes CNBC. First, contributions on the HSA are fully deducted from gross income. Secondly, your investment gains inside the HSA are subject to deferred tax. Thirdly, as long as your funds from the HSA go to related medical expenses, they are not included in the gross income.

To be eligible to pay the full authorized amount for 2018 to HSA, you must have a high deductible health insurance plan on the first day of the last month of the tax year. For most taxpayers, this is December 1. You cannot register with Medicare or be dependent, or use additional medical care options.

If you met the requirements throughout the year, you can save up to 3450 dollars as part of the HSA. A family can deposit up to 6 900 dollars per 2018 a year. People older than 55 years can deposit additional 1000 dollars for a total of 4450 dollars per person and up to 7900 dollars per family.

In some cases, the employer may make a contribution to the HSA on your behalf. Therefore, if you want to deposit money on your own, be sure to check this option. If necessary, you can transfer money to another HSA. In addition, the money does not go away if you do not use it for a year, as is the case with some flexible expense accounts (FSA).

You can make a contribution on HSA for 2018 a year before 15 in April 2019 and fully deduct the amount of the contribution from taxes, allocating these funds for future medical expenses.

2. Make a contribution to an individual retirement account (IRA) for 2018 year

As in the case of HSA, you can replenish a separate retirement account for 2018 a year before 15 April. To finance an IRA, you must be younger than 70 years and 6 months, and receive employment income at least equal to the amount of your contribution to an IRA. For 2018 year, you can invest up to 5500 dollars. If you are older than 50 years, you can add an extra fee of 1000 dollars. If only one of the spouses works in the family, the worker can contribute to the IRA of the non-working husband or wife. So a couple can save 11 000 dollars a year on traditional IRAs. And if both have reached 50 for years, they can set aside 13 000 dollars per 2018 a year.

Contributions to a traditional IRA may or may not be deductible. The deduction may be limited if you or your spouse have an employer-sponsored retirement plan, such as a 401(k). If you are a single filer with adjusted gross income of $63 or less, or a joint filer in a qualified plan with income of $000 or less, you can deduct the contribution up to the full 101 amount. For single filers, the deduction is phased out from $000 to $2018, and for spouses filing jointly, the deduction is phased out from $63 to $000.

If you exceed the threshold, you will not be able to deduct this contribution from your taxes. Finally, if you are married and file a joint declaration, and you are not an active participant, but your spouse is, the range of step-by-step deductions for an inactive participant is from 189 000 to 199 000 dollars. So, if you are entitled to a deductible IRA installment for 2018 a year, it is not too late to replenish your account and get a tax deduction.

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3. Set up SEP or SIMPLE retirement plans for 2018 year

If you have consulting income, run your own business, or earn a side income, you'll likely be able to use a simplified employee pension (SEP) or SIMPLE IRA to help fund your retirement and get a tax credit for 2018. (A SIMPLE IRA is a type of tax-deferred retirement plan provided by an employer; the plan allows employees to save money for retirement.)

SEP and SIMPLE are funded by IRA and allow small business owners to save money for themselves and other employees. If you have employees, it’s not so easy to immediately determine whether you need to use SEP or SIMPLE: you may need to contribute on their behalf.

If you are self-employed and are the only employee, you can set SEP or SIMPLE to 2018 a year and deduct the contributions you make to the account. You can create and replenish your SIMPLE before 15 on April 2019 of the year for the 2018 tax year. As a rule, with SIMPLE you maximize 2018 contributions of the year at around 25 000 dollars. And if you are older than 50, then about 31 000 dollars. SIMPLE is funded by a combination of employer contributions and deferred employee salaries.

If you've already exceeded your 401(k) plan's maximum salary deferral of $18, this will limit your ability to use SIMPLE. But with a SEP, you can still set up and fund an account for 500 and collect up to $2019 from it. Additionally, all SEP funding is treated as coming from the “employer” and not as deferred payroll, even if you are the only person in the business. For people with low incomes who haven't exceeded the maximum deferral limit in a 55(k) plan, SIMPLE can help you save more money—since the SEP is capped at 000% of your net income.

Using SEP or SIMPLE is the most complex of the three strategies discussed. But in the right situation, these plans can be a great way to fund your retirement fund and reduce your current tax bill.

Before setting up any of these accounts, it makes sense to talk to a knowledgeable professional who can review your specific tax situation and determine whether this retirement account is right for you personally. It is important to consider all three strategies in the long-term savings and investment perspective, and not just as a way to cut taxes once.

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