There are many ways to trim your tax bill, but 75 percent of Americans are clueless about one of the easiest ways to keep Uncle Sam at bay.
Just 25 percent of taxpayers realize that you can still make a 2018 contribution to an IRA in 2019, according to NerdWallet’s latest annual tax survey.
In fact, you have right up until Tax Day — April 15 — to make a contribution for 2018 that will reduce the amount of tax you owe on the return you are filing this year.
How much money can that save you? Andrea Coombes, a tax specialist at NerdWallet, tells CNBC:
“Say you’re earning $50,000 a year. If you qualify for a deductible contribution and you can put in $5,500 — the maximum in 2018 if you’re under age 50 — that will drop your taxable income to $44,500. If your top tax rate is 22 percent, you’re shaving $1,210 off your tax bill, and you’re saving for retirement, too.”
If you’re 50 or older, the max you can put in an IRA for 2018 is $6,500.
Just note that only contributions to traditional IRAs are tax-deductible upfront. If you put money in a Roth IRA for 2018, it will not reduce your taxes this year. Instead, you’ll be able to withdraw both your contributions and any earnings they generate tax-free in retirement.
For more on the differences between these two types of retirement savings vehicles, check out “2-Minute Money Manager: Which Is Better — Roth or Regular Retirement Plans?”
More ways to save on taxes
There are plenty of other ways to lower your tax bill between now and April 15. Doing so requires you to use resources that can direct you to the deductions and credits you might otherwise overlook.
Some people feel most comfortable hiring a tax professional to do their returns. But others can do just as well with a DIY approach.
If you are among the latter, check out “The 5 Best Tax Software Programs for 2019.” In that story, you’ll find our selections for the most popular and potent tax software on the market.
For more tips on saving money — either on your tax return itself or the tax preparation process — check out:
- “Tax Hacks 2019: Beware These 9 Common and Costly Tax Mistakes“
- “Tax Hacks 2019: 6 Ways to Get Your Taxes Done for Free“
How do you save on taxes? Share your tips in comments below or on our Facebook page.