Last Minute Deductions for Tax Year
Is it possible to spend money on deductions now and have the expense be deducted on our 2013 tax return? Yes, but only for the following types of deductions:
Savings contributed by April 15, 2014, to a traditional IRA can potentially be deducted on your 2013 tax return. In order to make this work, you’ll need to tell your financial institution that the
contribution is for tax year 2013. Up to $5,500 can be contributed ($6,500 if you’re age 50 or older). Be aware that the amount of the deduction might be limited to a lesser amount (or to zero) depending on your income level and whether you and/or your spouse are covered by a retirement plan through your employer, such as a 401(k).
The typical tax planning analysis is to figure out how much of an IRA deduction you would qualify before and how much that deduction would reduce your federal and state taxes.
Alternatively, you might be able to put your savings into a Roth IRA. There’s no deduction for funding a Roth IRA, but the earnings can be potentially tax-free. Roth contributions for tax year 2013 are also due by April 15, 2014.
Funds contributed to a health savings account (HSA) by April 15, 2014, can be deduction on your 2013 tax return. In order to make this work, you’ll need to tell your financial institution that the contribution is for tax year 2013. The contribution
limit is $3,250 (for individual coverage) or $$6,450 (for family coverage) plus $1,000 in catch-up contributions for people age 55 or older. Be aware that to qualify for this deduction, you would need to have an HSA-compatible high deductible health insurance plan. The contribution amount is limited if you had coverage for less than a full year.
The principal benefit of an HSA is that you get a deduction for contributing to the HSA, and the funds and earnings come out tax-free at the federal level as long as the funds are spent on qualifying medical expenses.
- Charitable Donations Typhoon Haiyan Disaster Relief
A rather late-breaking development in the tax world, Congress has passed a law permitting taxpayers to take a deduction on their 2013 tax return for donations made to charities providing relief to victims of Typhoon Haiyan. To qualify, you’ll need to donate between March 26, 2014, and April 14, 2014.
This last-minute tax deduction is only available for people who are itemizing their deductions, as charitable donations are reported on Schedule A.
Self-employed persons can contribution savings to a SEP IRA, which is a special type of retirement savings plan. Savings contributions made by April 15, 2014, can be deducted on a 2013 tax return. Be sure to tell your financial institution that the contribution is for tax year 2013, so they can code it right when reporting the contribution to the IRS. Even more interesting, if a self-employed person files an extension, this will also extend the deadline to fund a SEP IRA. In other words, a self-employed person could fund their SEP IRA as late as October 15, 2014, and still deduct it on their 2013 return, as long as an extension is filed.