It has been a busy few weeks here but I hope to get back into the swing of posting regularly. Today I want to talk about something we all deal with whether we make six figures or live under the poverty line. Taxes!
We all have to pay taxes. Some people pay a lot, some people pay very little as a result of income, some people pay significantly more as a result of high incomes or poor tax planning. There are a few things you can still do to help your taxes for 2016.
So what is your option to help with 2016?
Traditional IRA’s- You have until you file your taxes to contribute to a IRA for you and your spouse. That means if you and your spouse both had income last year you can contribute up to $5,500/ person for 2016. These contributions will come as a deduction on your 2016 income tax return. If you have any tax liability for 2016 you can reduce or eliminate them (yes eliminate them) through an IRA contribution as long as you have cash on hand to make the contribution.
It is too late to do a lot for 2016 but 2017 is only just beginning. Did you know it may be possible for you to contribute up to $53,750 into tax advantaged accounts in certain instances? Now most people will never actually save that much this year but it is possible.
So where should you start?
- I would start with ensuring you are getting any match that your employer offers. An employer match is free money that it is an automatic 100% return on your savings. You will never beat that investment.
- Our family’s next step is contributing to our HSA. For us, this is a payroll deduction as our plan is linked to my employer health plan. I tested this for everyone so I could show how it worked out for us. A $160 monthly contribution to our HSA only cost us $95.24. That is a tax savings of $64.76 a month which is free money saved.
- This money can be used for a variety of medical expenses. Including doctor visits, prescription drugs, dental and vision care and so much more.
- Many accounts (including mine) have great investment options. This works like an extra retirement account but I get to use it to help build an emergency fund.
- My next stop is contributions to a Roth IRA. Once we eliminate our tax liabilities everything goes into a Roth. There are a variety of reasons for this that I will expand on in the future, but one trick is that we can pull this out in case of emergency without tax penalty. A bonus emergency fund.
I am not a financial adviser and I didn’t stay at a Holiday Inn express last night, but I have tested these things and they work. Don’t wait till this time next year to start to figure out your taxes. By starting now you can really save yourself money come next year. Just our HSA will save us $777.12 this year. And who doesn’t want an extra $777 this year?