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

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.

Warren Buffett’s 2018 Activist Investment

Berkshire Hathaway Warren BuffettMost investors are aware of Warren Buffett's most high profile long-term investments. However, there is one long term investment that is often overlooked. Q2 2020 hedge fund letters, conferences and more This is building materials maker USG, which was owned by Berkshire Hathaway for more than 17 years before it was acquired in 2018. If Read More


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