It’s not too late to save on 2019’s taxes
The Coronavirus Crisis and the resulting CARES Act have created an unprecedented tax season. In addition to extended filing deadlines, several relief measures could directly affect your 2019 taxes.
Here’s how you may still be able to save on 2019 taxes:
- July 15th is your new deadline. The federal government and all state governments have extended their tax filing and payment deadlines until mid-July, giving filers with balances due a short reprieve. If you pay quarterly estimates, your first and second quarters aren’t due until July 15th either. (The standard September 15 and January 15 deadlines are still in place for third and fourth quarter payments.) This could make July an expensive month, but it also gives people experiencing cash flow problems a few months to recover and prepare.
- You can make tax reducing contributions until July 15th. You have until this summer to make contributions that could reduce your overall 2019 tax bill, including:
- Health Savings Account (HSA) Contributions: This year, individuals can contribute—and deduct—up to $3,500. The family limit is $7,000. If you are over 55, you can put an extra $1,000 into your HSA account.
- IRA and Roth IRA Contributions: Depending on eligibility requirements (based on income and work retirement plan coverage), you can contribute up to $6,000 if you are under 50 years old and up to $7,000 if you are over 50. You may be able to deduct some or all of your contribution to a traditional IRA, depending on eligibility, while Roth IRA’s tax benefits come down the road with post-retirement, tax-free withdrawals.
- “Backdoor” Roth IRA Contributions: If you make too much to contribute directly to a Roth IRA, you can still take advantage of post-retirement tax benefits by contributing to a traditional IRA, then converting it to a Roth. (There are no income limits for conversions!) Your income level will make you ineligible for tax deductions on that first contribution to a traditional IRA, but you’ll reap the tax benefits after retirement with those Roth tax-free withdrawals.
- Small-business owners’ SEP-IRA Contributions: Contributions to employees’ SEP-IRAs are limited to whatever is less: 25% of their compensation or $56,000 for 2019. (Self-employed SEP-IRA contributors use a different calculation for their SEP-IRA limits.)
- You will not have to pay taxes on your stimulus check. If you’re eligible for a CARES Act economic impact payment, that income won’t be taxed on a federal or state level. Technically, these payments are 2020 federal tax credits that are being given out in advance via check and direct deposits. Instead of being activated when you file your 2020 taxes next year, you are getting that credit now (if your adjusted gross income, AGI, is under $99,000 for individuals and $198,000 for joint filers).