“As the tax filing deadline rapidly approaches, you may be scrambling to not only prepare your taxes, but reduce your potential liability as much as possible,” says Vanessa Borges, and Enrolled Agent and Tax Prep Supervisor at Tax Defence Network, LLC. “While many of your deduction options expired with the close of 2014, there are a couple of last minute moves that may help you out.”
That’s right: Just because 2014 is over, it doesn’t mean that you can’t claim new tax deductions for 2014. You still have time to contribute to an Individual Retirement Account (IRA) or Health Savings Account (HSA) and count it as a previous year contribution, lowering your tax liability for 2014, even though we’re well into 2015.
Deducting IRA and HSA contributions for the previous year
“Both Roth and Traditional IRAs allow for contributions for the previous year, with April 15 as the cutoff date,” says Borges.
While you won’t receive a tax deduction for the Roth IRA, it can provide you with a little extra wiggle room if you haven’t maxed out your contribution (currently $5,500) for the previous year. The money in your Roth IRA grows tax-free, so slipping in a little more — if you have the contribution room — can make a lot of sense for your long-term financial situation.
A Traditional IRA is a different story, however. You do receive a tax deduction for your eligible contributions, and you can still contribute for 2014, all the way up until April 15, 2015. As long as your IRA was opened by the end of 2014, says Borges, you can make a previous year contribution and deduct it on your 2014 taxes — even if you make your contribution in early 2015. Last year, my accountant helped me see that I could save money on my taxes by using a previous year contribution to max out my HSA contributions. Not only did it save me on my tax bill, but it also encouraged me to set aside more money for the future, and set me up for better future returns on my tax-efficient investment.
The HSA offers a similar opportunity. With the HSA, your eligible contribution is tax-deductible, and the money grows tax-free when you use it for qualified expenses. Your HSA is a great tax-advantaged savings vehicle. And, like the IRA, you can make contributions for the previous year up until Tax Day. On top of your own HSA contributions, it’s also possible for your employer to make previous year contributions to your plan.
Borges warns taxpayers to be careful when claiming their previous year contributions, however. There are eligibility requirements for IRAs and HSAs, and you need to make sure that you meet them. “Remember that your contributions must be made in cash and cannot be generated by property or stocks,” she says. Borges also cautions that you should check on income phaseouts for deductions, as well as the high-deductible health plan requirement that comes with HSA contributions.
When making a contribution to a HSA or IRA, you should be asked whether or not you are making a previous year contribution or a current year contribution. It’s important that you are clear that you are making a previous year contribution. There might be a box for you to check, or some other indication to make. Double-check your paperwork or your online form before submitting to ensure that you are on the right track.
Also, understand that you can’t claim the same deduction twice. If you make a previous year contribution to your IRA or HSA, you can’t claim that contribution for the current year. Keep good records so that you don’t try to claim the same deduction more than once. A licensed tax professional can help you determine whether or not you eligible to make additional contributions, and provide you with help as you navigate previous year contributions.
Comb through your previous year receipts
In addition to possibly making previous year contributions, Borges recommends examining your receipts from the previous year. “Don’t forget to comb through 2014 receipts for charitable contributions and expenses you can write off,” she says.
Many taxpayers overlook deductible expenses, and, as a result, end up paying more on their taxes than they have to. Borges points out that going through your expenses can help you determine where you stand, and identify expenses you might have missed. It’s almost like getting a last-minute tax break when you find expenses you didn’t realize you could deduct.
Taking the time to look for last minute tax breaks can save you money in the long run. First of all, a last minute deduction can reduce your taxable income — and your tax bill. On top of that, there are some deductions that come with income limits and phaseouts. If you can reduce your AGI through last minute deductions, you might suddenly become eligible for other deductions you might not normally qualify for. This is especially true for higher earners who are just at the edge of an income limit or phaseout.
It might take a little extra time to review your spending and your options, but it’s well worth it, especially if you can reduce your overall tax liability.