After preparing your 2017 tax return and finding out that you still owe Uncle Sam, it's natural to feel some regret over things you could have done before the end of 2017 that could have lowered your tax bill. For example, if you contributed less than $18,000 to your employer's 401(k) retirement plan last year, you can't go back and make that contribution now.
But in certain situations, taxpayers can still do some things now to reduce their gross income on their 2017 tax return.
For instance, workers can make tax-deductible contributions for last year to several types of retirement savings accounts, even though the contributions are made this year. Here's the list of these accounts, how much you can contribute and the deadline for doing it.
Traditional and Roth IRAs
You're still allowed to make a 2017 contribution to these accounts if you do so by the due date for filing your 2017 tax return, which is April 18 this year. But this deadline doesn't get extended when you file for an extension until Oct. 15. This deadline also applies to opening a new IRA.
The maximum contribution you can make to an IRA for 2017 is $5,500. You can add an additional $1,000 if you were over age 50 on any day in 2017. Whether you can claim a deduction for an IRA contribution depends on your adjusted gross income. If you're single and your AGI is over $62,000, you're allowed a partial deduction. But if your income exceeds $72,000, the IRA deduction is completely phased out. The AGI limits for marrieds is $99,000 and $119,000.
Health savings accounts
For a growing number of workers, a health savings account, or HSA, is a much.
An HSA is a special account that allows you to save money that can later be withdrawn tax-free to reimburse yourself for medical expenses. Best of all, money you contribute to an HSA is tax-free on the way in, grows tax-free and is tax-free when you take it out to pay for qualified medical expenses. No other long-term savings account allows this.
HSAs are so valuable that I advise clients that after they take advantage of the matching contribution in their employers 401(k) plan, they should make the maximum contributions to an HSA before saving money in another account or plan.
You can still make a 2017 contribution to an HSA if you do it by the April 18 filing deadline. Again, this deadline doesn't get extended when you file an extension. Contributions for 2017 are also allowed even if you didn't open the HSA in 2017. You can open one now, make the 2017 contribution and take a deduction for it on your 2017 tax return.
To contribute to an HSA, an individual must have been covered last year under a health insurance plan with an annual deductible of at least $1,300, or $2,600 for a family plan. The maximum annual HSA contribution in 2017 is $3,400 for individuals, $6,750 for a family. Those age 55 and older can contribute an additional $1,000.
This retirement plan allows the self-employed to make generous contributions both as an employer and as an employee. You can make two types of contributions to this plan. As an employer, you can contribute a percentage of net profit. As an employee, you can contribute a fixed-dollar amount up to the employee 401(k) contribution limit ($18,000, or $24,000 for those over age 50 in 2017).
This plan works best for a sole-proprietor with no employees. That's because if you have any employees age 21 or older and who work at least 1,000 hours per year, you'll have to also open accounts and make similar contributions for them. Finally, you will need to establish the SE 401(k) account before year-end, but you can make the deductible contributions by your tax filing deadline, including valid extensions.
SEP IRA or SIMPLE IRA plan
If you're self-employed, a business owner or sole proprietor, you can establish and contribute to either of these retirement plans. For a SEP IRA, as the employer you must contribute a uniform percentage of pay for each employee, who can't make their own contributions. The allowed contribution amount is up to 20 percent of your self-employed income (or 25 percent of an employee's compensation), up to $54,000.
An alternative is the SIMPLE IRA. It allows employees to contribute a percentage of their pay to an IRA and requires an employer to either match employee contributions (dollar-for-dollar) up to 3 percent of compensation or make a fixed contribution of 2 percent for all eligible employees, even if they choose not to contribute.
A SIMPLE IRA plan is allowed for employers with 100 or fewer employees. The limit for employee contributions is $12,500 for 2017. The catch-up contribution for those over age 50 is $3,000.
Contributions to these accounts can be made by the employer's tax filing deadline, including valid extensions, for the employer to be able to deduct contributions for the 2017 tax year.