By Cristina Wiebelt-Smith, CPA, Associate Wealth Advisor
Tax planning is best done throughout the year, but here are four things you can do by April 15, 2022, that might provide tax benefits for the 2021 year.
Contribute to your Health Savings Account, or HSA
The last day to make HSA contributions is the tax-filing deadline of the following year. That means you can make 2021 HSA contributions until April 15, 2022.
For 2021, HSA contribution limits are S3,600 for individual health plans and S7,200 for family health plans. If you’re 55 or older during the tax year, you may also be eligible to make an additional $1,000 catch-up contribution. Please note that if you have an employer-sponsored HSA, any contributions made by your employer will count toward these limits. Only the amount that you contribute is eligible for the deduction.
If you’re worried about parting with the cash, make the contribution and then shortly after, reimburse yourself for any 2021 qualified medical expenses you paid out of pocket. (Keep in mind that health insurance premiums are not qualified medical expenses for this purpose.) You get the deduction and still have the cash. The HSA is also a great tool for households with a higher income because the deduction isn’t a phaseout for high-income taxpayers.
If you want to understand more about why the HSA is called the “triple threat” of tax savings, you can check out another article on our website, “Got an HSA? Learn How to Maximize it.”
Make an IRA contribution
You can make 2021 IRA contributions until April 15, 2022. You can contribute up to $6,000 to a traditional IRA for 2021, and if you’re 50 or older, you can make an extra $1,000 catch-up contribution for a total of $7,000. If both you and your spouse are eligible, you could end up with a deduction of $12,000 or $14,000 for 50 and older. If you are covered by a retirement plan at work, your deduction begins to phase out at modified adjusted gross income of $66,000 for single and head of household and $105,000 for married. This does not affect your ability to contribute to an IRA – you just may not get a deduction for the full amount.
Make a Roth contribution
While it doesn’t provide an immediate tax deduction, it may be beneficial to your long-term tax plan to contribute to a Roth. The contribution deadline is April 15, 2022, for the 2021 tax year. The amount you can contribute begins to phase out at modified adjusted gross income of $125,000 for single, head of household or married filing separately and $198,000 for married filing jointly.
Contributions to a 529 plan
Contributions to a 529 plan are not tax deductible at the federal level, but over 30 states offer a state income tax deduction or credit for 529 plan contributions. Of those 30 states, six give you until the tax deadline to make a contribution for the prior year. If you live in Georgia, Iowa, Mississippi, Oklahoma, South Carolina or Wisconsin you have until April 15, 2022, or in some cases, April 30, 2022, to make a contribution and get a prior year tax benefit.
If you want to find out more about any of these opportunities, please feel free to reach out to us for more information. As always, consult with your tax preparer about your eligibility for these deductions and to determine if they make sense for your tax situation. We welcome collaborating with your tax preparer so we can all work in the same direction for your benefit.
This piece is not intended to provide specific legal, tax, or other professional advice. For a comprehensive review of your personal situation, always consult with a tax or legal advisor.