You've completed your 2018 tax return, and you don't like the results. How did you end up owing so much money? There's nothing you can do about it now... or is there?
While the 2017 Tax Cuts and Jobs Act (TCJA) made sweeping changes to the tax laws, it didn't offer any retroactive means of affecting your taxes — but it did leave a tax adjustment method related to retirement accounts untouched.
If you have an IRA, you may be able to make a contribution to that IRA and still count that contribution against your 2018 taxes. You have until the tax-filing deadline (April 15, 2019) to make any remaining contributions up to the 2018 annual limit of $5,500 ($6,500 if you are age 50 or above).
Don't feel bad if you didn't understand the IRA rules. A recent NerdWallet survey found that only 25% of taxpayers knew that it was legal to make contributions to an IRA after the tax year was completed but before the filing deadline in the following April.
Don't have an IRA? You can even open an IRA before the filing deadline and still apply the contributions to the previous tax year.
This money move doesn't work with Roth IRAs though, since those retirement accounts are funded with after-tax dollars. However, IRA contribution limits apply collectively, so if you have both, make your remaining contributions to the traditional IRA if you want to claim tax benefits. Leave the Roth IRA contributions for a year with a different tax outlook.
What about 401(k) plans? The same April 15, 2019, deadline applies, but your plan may limit your options. Many 401(k) plans are funded through payroll deductions on the employee side, and it's up to your plan as to whether extra contributions are allowed or if they are allowed up to the tax-filing deadline. For 401(k) plans, the 2018 contribution limit is $18,500 with a $6,000 catch-up contribution allowed for those who are 50 or older.
Beware of one potential pitfall. When contributing to a previous year's retirement fund, you must specify that your contribution is to go toward the previous year. If you don't, the contribution will go toward the current calendar year's total by default.
The TCJA left one other method of reducing the previous year's taxes untouched. If you have a high-deductible health plan and are eligible for a Health Savings Account (HSA), you can make similar contributions and gain similar tax benefits. The HSA strategy was also a mystery to many Americans, with only 17% of survey respondents knowing it's an option.
HSA limits for the 2018 tax year are $3,450 for individuals and $6,900 for families. Catch-up contributions of $1,000 are allowed, but the lower age limit is 55 instead of the age limit of 50 allowed by retirement plans.
There aren't many ways to lower your tax bill between the end of the calendar year and the tax-filing deadline. Most people understand that shady methods like overstating expenses and not reporting tips aren't allowed (although 2-6% of survey respondents thought these illegal activities were legal). Other methods like delaying income to the next tax year are legal but only apply up to the end of the calendar year.
However, retirement plans and HSAs offer legal ways to reduce your tax bill before the filing deadline. If you have the availability and the means, why not take advantage while you can?
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