By William Spar, ARP
As early as it is into 2020, people are already thinking about tax time – and with good reason, as April 15th will be here soon! But armed with some information, there is no need to dread tax day. Here are some of the more important items to be aware of and what to take advantage of this tax season.
The big new law to note that affects virtually every retirement-saver in America (especially if you have money inside of an IRA), is the SECURE Act (Setting Every Community Up for Retirement Enhancements Act) of 2019. The condensed version of this new law is that it dramatically affects how your money is spent after you pass away, which forces you to spend it faster, regardless of your wishes.
There are solutions to overcome and take advantage of this, including:
1) You have until “Tax Day” to make a contribution to your IRA for either the 2019 or the 2020 tax year. For both a Traditional as well as the ROTH IRA, the contribution limits are $5,500 if age 49 or younger, and an $1,000 additional “catch-up” provision if aged 50 and older.
2) Take advantage of a Health Savings Account (“HSA”) – these are tax-advantaged savings vehicles that help people with high-deductible health care plans set money aside on a tax-favorable basis for “out of pocket medical expenses.”
The Contribution Limits are $3,500 each for Individuals or $7,000 for a family. Contributions to an HSA are tax deductible (it’s right on the first page of your 1040 form as an adjustment to income). You don’t even have to mark them as an itemized deduction for medical expenses.
3) Take advantage of Tax Credits. Tax Credits reduce the amount of income you owe the IRS. Common credits are the Earned Income Tax Credit, The Child Tax Credit or the American Opportunity Tax Credit for students or parents in college.
4) File an extension. Should you need more time to file your tax return, filing an extension can help. It does not, however, negate the responsibility to pay your debt by April 15 of each year.
5) Be sure to take advantage of the right deduction strategy. Deductions are the expenses you incur throughout each year that you are allowed to deduct (subtract) from your Taxable Income. You’ll either “itemize” your deductions (adding-up your actual 2019 receipts) OR you’ll choose the Standard Deduction with a “pre-set” dollar amount. Check with your tax-advisor for exact amounts. You’ll obviously want to choose the deduction strategy that has the most deduction-impact for your situation.
6) Take some time to also learn about the new law that went into effect that changes the Required Minimum Distribution (“RMD”) age, especially if you’re nearing age 70 already. This affects you!
7) Another new law introduces and allows for the addition of certain types of Annuities into existing 401k plans. These are excellent tools that can guarantee a stream of income that can last for your entire retirement. But be aware, there are good ones and certainly bad ones.
ARP Tax Pro is here to help answer any of the above items or discuss any other topic pertinent to your situation. Reach us by calling 623-889-3403.
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