What You Need to Know
- Employee clients can add to retirement accounts.
- They may be able to add to health accounts.
- Business owners have a third, great option.
Do you ever have a déjà vu feeling? Like you’ve done this very thing before?
For me, it happens every year when I prepare my taxes. I start going through everything and determine what I owe the federal government in taxes.
As I complete this process, I think to myself, are there strategies that would help me maximize my tax efficiency? But what can I do now?
Once the calendar year turns over, there is very little clients can do to increase their deductions and lower their tax bills.
They can contribute 2023 payroll income to a SIMPLE or 401(k). Still, that option is based on 2023 payroll taxes and is primarily gone after the end of January. So, what options are there?
There are a few, and they are limited.
Of course, as always: You should understand all of the options, and you should consult with your own compliance advisors about whether and how to talk about the options with clients.
1. Traditional IRAs
If a client hasn’t reached the maximum annual contribution, they can contribute to a traditional IRA.
They can make a prior year contribution up to April 15.
The IRA contribution is an above-the-line deduction, and it’s important to understand that a contribution to an IRA can sometimes mean that it will not result in a tax deduction.
The IRS has rules to determine if an IRA contribution is deductible.
The requirements can be found on the IRS website.
The ability to deduct depends on whether your client or their spouse is eligible for a retirement plan at work.
If so, the IRS looks at the adjusted gross income to determine if the IRA contribution is deductible.
2. Health Savings Accounts (HSAs)
Another option is to contribute to a health savings account.
The HSA contribution deadline is also April 15.
If your client has a high deductible health plan, they can contribute the total amount to the health savings account by April 15.
The maximum contribution for an individual is $3,850. For a family, it’s $7,750.
