Benz’s Last-Minute Tips to Lower Your Tax Bill

Published on Apr 5, 2016
Eligible investors still have time to implement these money-saving strategies, says Morningstar’s Christine Benz.

Income Taxes

0:03for Morningstar I’m Jeremy Glaser as we approach tax day many investors are
0:07looking for ways to reduce their tax burden and it’s Christine Banshees our
0:10director personal finance for some last-minute attempts to seeing things
0:13trying to make Jeremy it’s great to be here so a lot of deadlines for things to
0:17help your 2015 taxes have passed but there are a few things investors can do
0:21the first is whether I raised what are some options there that’s right so the
0:25contribution limit for 2015 for the 2015 textures 5504 savers under age fifty it
0:32is 6500 for people who are over age 50 and this is something you can definitely
0:37do to lower your tax bill if your income falls below the thresholds for deduct
0:43ability or if you’re not contributing to a retirement plan at work in which case
0:48you don’t have to worry about the income thresholds so for the 2015 tax year you
0:54need to have modified adjusted gross income below 71,000 to make a
1:00traditional IRA contribution and have any part of it be tax deductible your
1:06part part of a married couple filing jointly that modified adjusted gross
1:10income needs to be below $118,000 is not to say that the deductible IRA
1:17contribution is necessarily for everyone there may be situations where making a
1:21Roth contribution is the better idea but certainly if your goal is to try to
1:26lower your taxes this year for 2015 if see if you can make that deductible
1:32contribution but investors are probably familiar with IRA contributions what are
1:36some other tips you think that are often overlooked one of the big ones is that
1:41people do wait until the very last minute to russian their contributions
1:44for the tax year prior and it’s generally not advisable to do that
1:49because you’re giving up some market return given that the market over long
1:54periods of time does tend to trend up there’s an opportunity cost there two
1:59rushing in contributions some research from Vanguard showed that a lot of
2:03contributions do come in
2:05in at right close to the filing deadline the vanguard research also showed that
2:11people when they do make that last-minute contribution or any IRA
2:15contribution for that matter sometimes they let the money hang out in cash
2:19rather than getting it invested there again there’s an opportunity cost to
2:24leaving the money in cash which is generating a close to zero return
2:29percent return currently versus getting that money invested in the market
2:34another thing to keep in mind is if you have an hour and non earning spouse you
2:40may be able to make a spousal IRA contribution that too can be used to
2:46lower your your taxes assuming that you fall below those income thresholds
2:53finally people who are eligible for the saver’s credit so these tend to be lower
2:58income households can actually double-dip on the tax benefits so they
3:02can get that saver’s credit and then they can also deduct their IRAs on their
3:06tax returns to the potential s no strategy is to put some money into an
3:11HSA what’s available people have a high deductible health plan what would be
3:16some strategies are with us we’ll hear again your limit is your tax filing
3:21deadline so April 18th would be the deadline to fund an HSA for 2015 the
3:27contribution limit was 3354 individuals and 6654 families so one thing we see
3:37when we look at the data on H essays is that these accounts tend to be
3:41underutilized in general so people aren’t even putting in in enough to
3:47cover their out-of-pocket health care costs this is something that our
3:50colleagues it i hella wallet which does a lot of research into these types of
3:54behaviors they found that people aren’t putting much into their HSE is not
3:58enough to cover their health care costs and even folks who have the wherewithal
4:02to contribute more to their HSA isn’ta let that money roll over from year to
4:08year and let the money grow over time people definitely aren’t doing that
4:12that many people even those who are funding their agencies are using those
4:17those dollars to sort of pay as they go for health care costs a lot of I think
4:23misconceptions about HSA is lot of confusion some people are naturally
4:27averse to HSE is because we’ve seen a lot of data indicating that some of the
4:32plans are pretty high cost so some of that I think hesitancy to contribute to
4:38agencies may be rational but there are ways to work around a poor each essay if
4:43if that’s what your company has on offer with some of those options but I think
4:48the best one is to think about if you are using an employer sponsored HSA so
4:54if the employer chose some custodian for the HSA that isn’t great maybe its
5:00high-cost HSE provider or maybe there are a lot of administrative fees or or
5:06transaction fees one thing you can do is think about contributing to that captive
5:14HSA but then after a period of time transferring those funds to an HSA of
5:21your choice so the benefit of doing that is that you would pick up the ability to
5:27make pre-tax contributions so your HSA contributions were would be deducted
5:32directly from your payroll but you’d be able to get into a battery Jesse I think
5:37that’s a terrific strategy for people who have a lousy in-house HSA and I
5:43would also say if you’ve done your homework on this and and found that your
5:46plan is larded with fees as a lot of them are complain to whoever is working
5:52to administer the plan within your company tell them that you think that
5:57that your plan could do better and perhaps even pre identify it a few good
6:01custodians for your age are administrator ok finally doing the best
6:06you can do that maybe get a head start on the 2016 texts are there things that
6:10they should be doing right now
6:12definitely you mentioned at the outset Jeremy that the the deadlines for a lot
6:16of things that you might do to affect your tax return in a given
6:20the texts that you own a given year those tests need to be completed by
6:25December 31st so on the short list of things that investors should be
6:29considering throughout the year would be fully funding those company retirement
6:33plan contributions the deadline there is December 31st in contrast with the IRA
6:40and HSA deadlines that would be a biggie and then another thing to consider
6:45assuming that we continue to have volatility in certain certainly
6:49individual securities are constantly experiencing volatility keep tax loss
6:54selling on your radar if you are holding securities in a taxable account if you
7:00have positions that are trading well below your cost basis periodically
7:05harvesting those tax losses can be very very powerful those are a couple of
7:10things that investors should have on their radars really throughout every
7:14every calendar year
7:16christine thanks for your thoughts on taxes thank you Jeremy for Morningstar
7:20I’m Jeremy Glaser thanks for watching