Don't Mess With Taxes

Credit: Panoramio via Wikimedia

Hello March! Good to see that you're following the traditional script and, at least here in the greater Austin area, roared in like a lion.

But the weather bluster also is a good reminder that some feline-style aggressiveness could pay off on your taxes.

Some of the four March tax moves below could cut your 2024 tax bill that you'll compute on the return due by April 15. Others are good tax moves for the current 2025, and future, tax years. A couple do both.

If any of the suggested tax moves work for you, implement them early in the month. That will take them off your tax to-do list, and give you get a head start on chilling like a lamb well before March ends.

1. Establish or add to your IRA. If you have an IRA, Roth or traditional, and didn't max out your contributions last year, do so now. That money can count as 2024 tax year contributions.

The maximum amount you can add for 2024 tax year purposes is $7,000 for either type of IRA. If you're age 50 or older, you and add another $1,000.

Yes, tax laws do give you until April 15 to make any prior year IRA contributions. If you don't have an IRA, you also have until that April deadline to open one and use it for the previous year's contributions.

But by putting your money into your IRA in March, it starts earning sooner, adding to the power of compounding. And for some taxpayers, contributions to a traditional IRA also could mean immediate tax deductions.

The biggest tax break is available to filers and, if married, their spouses, who don't have workplace retirement plans. In these cases, the full contribution amount is tax deductible.

However, if either spouse participates in a job-sponsored retirement plan, income thresholds based on modified adjusted gross income, or MAGI, amounts kick in. They are revised each year based on inflation.

The following Internal Revenue Service table shows how much of a deduction a traditional IRA contribution is worth on your 2024 return if you're covered by a retirement plan at work.

         
Spousal IRA possibility: Where couples' incomes and workplace plan situations negate traditional IRA tax deductions, they still might be able to achieve some savings through a spousal IRA

For jointly filing couples, a spouse that didn't have any taxable income might be able to contribute to an account known as the Kay Bailey Hutchison Spousal IRA. It was named after the former U.S. Senator from Texas who championed the plan.

As long as the other spouse had income, that amount is used to calculate eligibility and contribution limits.

Each spouse can put money into the Kay Bailey Hutchison IRA up to the current limits, which are the same as other IRAs. Again, for 2024, that's $7,000 per account, or $8,000 if you're age 50 or older.

Note, too, that as with other IRAs, the total spousal IRA contribution cannot be more than they earn. That's the couple's taxable compensation reported on their joint return.

If the working spouse didn't participate in a workplace retirement plan, all the spousal IRA contributions will be deductible. But if the working husband or wife is covered at work, income limits, as with traditional IRAs apply.

You can read more about spousal IRAs in IRS Publication 590-A.

More Roth maneuverability: If you’re not concerned about an immediate tax deduction, a Roth IRA is generally a better move. However, the amount you can put into this tax-free retirement savings vehicle is phased out for higher earners.

But there is some good news, again tied to inflation. Adjustments based on cost-of-living data increased the phase-out range for 2024 Roth IRA contributions.

Singles and head of household filers will face a reduced Roth contribution amount for the 2024 tax year if their earnings are between $146,000 to $161,000. The phase-out range for married filing jointly taxpayers is $230,000 to $240,000. Once your income exceeds the maximum amount for your filing status, you cannot contribute to a Roth IRA.

2. Claim the Saver's Credit. If you contribute to your IRA or another retirement plan, then check out the Saver's Credit. This tax break isn't available to everyone; it’s designed to help those who don’t make a ton of money and also saving for their post-work futures.

But if you do qualify for the Saver’s Credit, it can provide an immediate tax savings since tax credits are dollar-for-dollar reductions of any tax you owe. The Saver’s Credit is worth up to $1,000 per person, meaning married couples who add to their individual nest eggs can get a $2,000 credit on their joint return.

For 2024 tax returns, you can get the full Saver's Credit if, as a single filer or married filing separately taxpayer, your adjusted gross income was $23,000 or less. The credit is reduced if you make more, phasing out completely if you made more than $38,250.

Head of household filers must make no more than $34,500 to get the maximum Saver's Credit amount. These taxpayers who support other family members can't claim it at all if their income last year was more than $57,375.

Married filing jointly couples who made up to $46,000 in 2024 can get the full Saver's Credit on this year's filing. Their credit amount is reduced incrementally and eliminated when the couples make more than $76,500.

3. Contribute to your HSA. The same tax year contribution timing shift for IRAs also applies to health savings accounts, or HSAs. That gives you until April 15 to make your 2024 tax year contribution.

Doing so helps bulk up an account that's already a triple tax-saving threat. You get a tax deduction for contributions, tax-free growth in the account, and there’s no tax on withdrawals used to cover qualified medical expenses.

Plus, once you turn 65, an HSA can be an added retirement account. You can withdraw month from it and use it for any reason without penalty. You will, however, have to pay ordinary tax on these later-in-life non-medical distributions.

Sounds great, right? It is, but only for folks who have high deductible health plans (HDHP). In these cases, their HSAs help pay their larger out-of-pocket medical expenses.

For 2024, HSA owners with individual HDHP coverage you can contribute up to $4,150 to an HSA. Family HDHP coverage will let you put up to $8,300 in an HSA. Policy holders who are 55 or older can sock away an additional $1,000 for the tax year.

If you can afford to max out your HSA for the prior (and current) tax year, do so. The more you can contribute, the more you can benefit from the HSA's potential triple tax advantages.

4. Find a day camp for your kids. There’s nothing like children to refocus you on the present. But you might want to think just a tiny bit in the future here, too, like the fast-approaching summer when your youngsters are out of school and you (and your spouse if you’re married) will be working.

Many families find that day camps are a good way to provide some supervisions for their youngsters. There are lots of offerings, so you should be able to find a camp that suits your child’s interests. But you need to start looking soon. Like now. Popular day camps fill up fast.

Day camps also are good beyond occupying your youngsters while you and your spouse are at work. You can use at least part of the camp's cost to claim the child and dependent care credit. Even better, since it's a tax credit, it reduces your tax bill dollar-for-dollar once you've calculated ow much you owe.

Depending on your income, the number of dependent children at the camp, and the camp's costs, the credit could provide a tax break of up to $1,050 for care of one child or as much as $2,100 for camp care costs of two or more children.

This tax credit for this summer's camp costs won't apply until your file your 2025 return next year. But this year you'll have that tax planning knowledge, along with the more important parental peace of mind that your youngsters are entertained, educated, and otherwise supervised while you're at work.

More March Tax Moves: Whew! That’s a lot to think about for only four March tax moves. But if you’re raring — or roaring, sticking with the March opening animal comparison — for more and ready to attack your taxes like feisty felines of all sizes go after boxes, check out the ol' blog's right column.

There you'll find the regular monthly tax moves, listed under the countdown clock that's keeping track of the rapidly dwindling time remaining until to Tax Day 2025.

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