As the tax deadline of April 18 draws near, you can still search for some eleventh-hour tax deductions that can potentially save you money. According to Fidelity, a major mutual fund company, there is typically a surge in the number of investors contributing to their traditional individual retirement accounts (IRAs) during the three weeks preceding the tax deadline.
If you are eligible and have not exceeded your contribution limits, any funds that you deposit into an individual retirement account (IRA) or health savings account (HSA) by April 18 can be considered as a deduction on your tax return. However, the extent to which you can claim this deduction depends on your participation in employer-sponsored retirement plans and your income, which we will elaborate on below.
RA and HSA Maximum Contribution Limits What You Need to Know About Tax
For the year 2022, individuals under the age of 50 can contribute up to $6,000 to their individual retirement accounts (IRAs), while those who are 50 and above can contribute up to $7,000. It’s important to note that tax-deductible contributions are only applicable to traditional IRAs since they are made with pre-tax funds and are taxed upon withdrawal. On the other hand, Roth IRA contributions are made with post-tax funds, and withdrawals are generally tax-free.
High-deductible health plans offer the option to contribute to a health savings account (HSA), which can be used to pay for qualifying medical expenses. The contribution limit for an HSA in 2022 is $3,650 for individuals and $7,300 for family coverage. Individuals aged 55 and above are eligible to make catch-up contributions of up to $1,000 in addition to the annual limit.
Tax Deductions: What Expenses Can You Claim?
If you and your spouse are not enrolled in an employer-sponsored retirement plan, you may be able to claim the full IRA contribution as a tax deduction. However, if you have a 401(k) and file your taxes as an individual with an income exceeding $73,000, you may not be eligible to deduct the entire IRA contribution. The phase-out range for this scenario is capped at $78,000. If your income is $78,000 or higher, you will not qualify for a tax-deductible IRA contribution.
For married couples filing jointly, if the spouse making the IRA contribution is participating in a workplace retirement plan, the phase-out range is between $109,000 and $129,000. If your combined income is $129,000 or more and you both have a 401(k), you will not be eligible for a tax-deductible IRA contribution.
If you or someone else makes a direct contribution to your HSA, you can claim a deduction for the full amount. However, if the contributions are made through your employer, they are already excluded from your income on your W-2 form. Therefore, you cannot claim an additional deduction for those contributions as per HSA deduction rules.
Furthermore, if your employer makes contributions to your HSA, that amount is usually excluded from your gross income. As a result, you cannot claim a deduction for those contributions again.
Tax-Deductible Contributions: What Other Options Do You Have?
According to the education research, calculators, and tools platform Saving for College, the states that allow contributions to 529 plans until April and permit deductions on the 2022 state tax return are:
- Georgia
- Iowa
- Mississippi
- Oklahoma
- South Carolina
- Wisconsin
In some states, you may still be able to make contributions to a 529 plan until April and claim a deduction on your 2022 state tax return. This option is available in about six states.