Contributed By Chris Sislo, CFP©, MBA©

April 15th  is less than two months away, but there is still time to take action before the deadline. Here are three easy ways to reduce your taxes.

1) Max out your HSA

A health savings account (HSA) is used to pay for qualifying medical expenses. Maxing out an HSA is often the most overlooked, but one of the easiest, ways to reduce your taxes. HSAs have a triple tax benefit: a) contributions are tax deductible, b) earnings grow tax deferred, c) distributions at any time are tax free – if used to pay for qualifying medical expenses.

To be eligible to contribute to an HSA, you must be covered by a high deductible health plan (HDHP).  Learn more about what health insurance plans qualify as a HDHP here.

The contribution limit for 2019 is $3,500 for self-coverage, and $7,000 for family coverage. If you’re 55 or older, an additional $1,000 catch-up contribution is permitted.

If your employer contributes to your HSA on your behalf, then it’s important to remember the contribution limit above is a combination of your contributions, as well as your employer’s contributions to your account. The employer contribution amount is reported on your W2, box 12, code W.  Reference the limits above, check your employer’s contribution from your W2, and the net amount is how much you can personally contribute.  

HSAs are not a “use it or lose it” account like FSAs (flexible spending account). An HSA is yours forever.

You can open an HSA at most banks, or through an HSA administrator like Health Equity, Optum, Fidelity, etc.

2) Contribute to your SEP

A simplified employee pension (SEP IRA) is a type of business retirement savings account often used by self-employed individuals.

A self-employed individual can contribute up to 20% of net self-employment income to a SEP. The max contribution for 2019 is $56,000.  

If you do not have employees, tax planning with a SEP is pretty straight forward. If you have employees, implementing and planning with a SEP at this time of year may be cumbersome and tricky. It can be done and may prove to be beneficial for you as the owner, but there are nuances you need to be aware of.

3) Contribute to your IRAs

Traditional individual retirement account (IRA) contributions can be considered pre-tax and may reduce your taxable income. Anyone with earned income under age 70 ½ can contribute to a traditional IRA in 2019.  Whether or not you can deduct the contribution is determined by your personal situation.  

(Note: with the recent passage of the SECURE Act, the age 70 ½ contribution limit has been removed. Meaning, anyone with earned income can make IRA contributions at any age for 2020 and beyond).

Determine your eligibility for an IRA deduction:

You are covered by a retirement plan at work

You are NOT covered by a retirement plan at work  

If you are ineligible to take a deduction for an IRA contribution, or if you prefer to pay the taxes now, consider contributing to a Roth IRA.  Roth IRAs are made with “after-tax” contributions and will not reduce your current tax liability.  However, ALL distributions after age 59 ½ are tax free.  Check to see if you are eligible to contribute directly to a Roth here.

The 2019 maximum IRA contribution is $6,000 per person ($7,000 if 50 or older at any point in 2019). Remember, this is per person. So a husband and a wife could each contribute these amounts.

All of the accounts listed above can be established up to the 2019 tax filing deadline – April 15th, 2020. You have until April 15th to open an account and make your contributions. However, make sure your custodian records your contribution as a 2019 contribution.

This article is contributed by HHM Wealth Advisors, LLC.  Visit www.HHMWealth.com for more information. HHM Wealth Advisors is not in the business of providing legal advice with respect to ERISA or any other applicable law. The materials and information do not constitute, and should not be relied upon as, legal advice. The materials are general in nature and intended for informational purposes only.