A Quick Way to Increase Your Tax Refund or Lower Your Tax Bill

tax guide

A Quick Way to Increase Your Tax Refund or Lower Your Tax Bill

Tax season may be in full swing, but there’s still time to make a wise financial move that many taxpayers overlook in their rush to file their returns and collect their refunds: saving for retirement.

Making a last-minute contribution to an individual retirement account (IRA) for the 2022 tax year. In most cases, taxpayers can make IRA contributions right up until the income tax filing deadline of April 18, 2023. Could be useful for those looking to reduce their tax bills and improve their financial fitness for 2023 and beyond. Here’s what you should do:

Traditional IRA contributions

Contributions to a traditional IRA are often tax-deductible in full or in part. The taxpayers earn income level and other factors, such as whether they—or their spouse—are cover by a 401(k) or other workplace retirement plan. Ultimately, determine whether they are eligible to deduct traditional IRA contributions in order to lower their taxable income and, ideally, increase their tax refund.

Taxpayers can provide to a traditional IRA even if they also provide to an employer-sponsored 401(k). 401(k) contributions do not affect IRA contribution limits. Workplace retirement plan sharing reduces tax-deductible contributions at certain income levels for taxpayers and their spouses.

The contribution limit for eligible taxpayers for the 2022 tax year is $6,000 for those under the age of 50 and $7,000 for those 50 and older. (the latter are eligible for catchup contributions). It is worth noting that this limit applies to both traditional and Roth IRA contributions, and individuals cannot provide more than their earned income.

Depending on whether their MAGI is less than $68,000 or between $68,000 and $78,000. A single taxpayer shares in a workplace retirement plan for year 2022 able to deduct all their traditional IRA contributions. If their MAGI is between $68,000 and $78,000, they may only be able to deduct a portion of those contributions.

 For those with a MAGI of more than $78,000, the tax deduction is no longer available. A full tax deduction is approve regardless of MAGI for a single taxpayer. Who is not cover by a workplace retirement plan.

If neither spouse is cover by a workplace retirement plan, regardless of joint MAGI. Both spouses can deduct the full amount of their traditional IRA contributions. Married couples filing jointly are allowing a full deduction for the spouse who is not covered by a workplace retirement plan if their combine income is $204,000 or less. They are authorized a partial debit if their joint income falls between $204,000 and $214,000, and no deduction is permitted if their joint income exceeds $214,000. If the couple’s joint MAGI is less than $109,000, the spouse who participates in the workplace retirement plan can deduct the full amount of their traditional IRA contribution. However, if the couple’s combine MAGI falls between $109,000 and $129,000, only a portion of that contribution may deduct. Those with a joint MAGI of more than $129,000 are not eligible for a deduction.

Self-Employed Retirement Account Contributions

Small business owners and self-employed individuals should not overlook the tax advantages of saving for retirement. Employers and self-employed individuals can set up SEP (Simplified Employee Pension) IRAs. The employer funds these plans with pre-tax contributions. Business owners who don’t have employees often prefer these plans. The employer must make equal % contributions to all eligible employees, not just the business owner.

The contribution limits for SEP-IRAs are higher than those of traditional IRAs for those who qualify. Whatever is less, contributions to a SEP-IRA cannot exceed 25% of the employee’s salary (20% for self-employed individuals) or $61,000 for the tax year 2022 (plus an additional $6,500 catchup contribution for individuals over 50). Because the deadline for establishing and funding a SEP-IRA matches with the employer’s actual tax-filing deadline, including any extensions, SEP-IRA contributions for the 2022 tax year can often be made as late as Oct 16, 2023

IRAs are a great way to save money and reduce your tax liability, but they have some nuances. When in doubt, remember that a CPA (certified public accountant) is on your side.

The tax laws are very complex. Our short blog articles can only partially cover all the rules and nuances. Your specific facts may hold various opportunities and risks that only a trained, and highly qualified tax expert can spot. We encourage you to find such help, rather than trying to figure it all out alone. Consider trying the IfindTaxPro marketplace by posting your project and signing up here. 

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